How Will Indonesia's Economic Growth Fare if the US-Iran Conflict Continues?

TEMPO.CO, Jakarta - Institute for Development of Economics & Finance (Indef) projects that Indonesia's economic growth could slow down if the Middle East conflict, accompanied by an energy price surge, continues until the end of 2026. Indef assesses the estimated slowdown at 0.21 percent.

Director of the Indef Program, Eisha M. Rachbini, said the projection is based on the results of a computable general equilibrium (CGE) model simulation prepared by the Indef team to measure the impact of global economic shocks on Indonesia's economy.

She explained that in the first scenario, assuming a 30 percent increase in the world oil price from the baseline of 70 US dollars per barrel, the consumer price index (CPI) is estimated to increase by 0.28 percent. At the same time, real wages are expected to decrease by 0.26 percent, and exports to contract by 2.44 percent. Meanwhile, imports are projected to surge by 7.80 percent due to increased energy needs and costs.

Furthermore, investment is expected to increase by 1.20 percent, but economic growth is still projected to slow by 0.21 percent. "Because when the price of crude oil rises, purchasing power will be eroded, inflation will rise, and real wages will also decrease. Exports will also decrease because there will be more imports. Although we also have rising export commodities, there is a contraction from very high fuel purchases," said Eisha, as quoted from Antara, Thursday, June 25, 2026.

The second scenario depicts a slowdown in the economy of the main partner countries. Assuming a 5 percent decrease in import demand from Indonesia's export destinations, the CPI is estimated to increase by 0.11 percent. Real wages are estimated to decrease by 0.29 percent, while investment is estimated to increase by 0.36 percent.

On the other hand, exports are projected to decline the most, by 5.05 percent, while imports will decrease by 0.23 percent. This condition causes economic growth to correct by 0.24 percent.

As for the third scenario, which is trade fragmentation and disruption of global supply chains due to increasing tariffs and non-tariff barriers, the CPI is estimated to increase by 0.18 percent and real wages to decrease by 0.23 percent.

Investment is almost stagnant with an increase of only 0.07 percent. Meanwhile, exports and imports are projected to decline by 1.16 percent and 0.30 percent, respectively. In this scenario, economic growth is estimated to slow by 0.17 percent.

"We conclude that if geopolitical risks, disruption and fragmentation of supply chains, and unanticipated climate change affect the sufficiently fundamental economy and good policies, then this will have an impact on growth contraction," said Eisha.

With these various challenges, Indef estimates that Indonesia's economic growth in the second quarter of 2026 is estimated to slow to around 5 percent on a year-on-year basis, as consumption normalizes after Eid al-Fitr, pressure on energy and food prices, rupiah depreciation, and increased production costs.

Read: MSCI Status Shows Indonesia's Strong Market Accessibility, Airlangga Says

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