Indonesia in Oil Shock Risk
As of 28 February 2026, the Middle East entered a new phase of escalation after coordinated U.S.–Israel strikes on Iranian targets, followed by Iranian retaliation across Israel and Gulf states hosting U.S. bases. Oil markets are repricing less on Iran’s direct supply share and more on the risk of disruption at the Strait of Hormuz, a critical chokepoint that carries roughly 20 million bpd and embeds a sizable risk premium when shipping and insurance conditions tighten. Early signs of logistical stress—tankers anchored near Fujairah and shipping pauses—have supported Brent’s move to around USD77.2/bbl, with upside risk toward USD80–90/bbl if disruption fears persist despite limited offsets from OPEC+’s planned supply increase. For Indonesia, higher oil prices are fiscally negative under the current subsidy framework, with every US$1/bbl rise in ICP worsening the deficit by roughly IDR6.8 trillion and risking a breach of the 3% deficit cap around an ICP level of roughly USD82.48/bbl, exacerbated by more frequent compensation payments under PMK 73/2025. Bank Indonesia starts from a 4.75% policy rate and a 10-year yield near 6.41%, with the curve outcome hinging on policy choice: absorbing the shock may keep BI steady but lift 10Y yields to 6.5–6.8% via deficit concerns, while pass-through may protect the deficit but raise inflation expectations and push 10Y yields to 6.7–7.0%.