Overview

Indonesia enters early 2Q26 facing heightened macro uncertainty driven by escalating geopolitical tensions in the Middle East and the resulting oil price shock. As a net oil importer, Indonesia is particularly vulnerable to rising energy prices, which could translate into higher inflation and fiscal pressure through subsidy channels. The risk of prolonged supply disruptions, especially around the Strait of Hormuz, has further complicated the global energy outlook. At the same time, external sentiment is turning more cautious, with global institutions revising growth expectations downward amid rising uncertainty.

Domestically, policymakers are beginning to respond through a mix of fiscal, energy, and structural measures to mitigate external shocks. The government is exploring policy tools such as biodiesel expansion, budget efficiency, and demand management strategies to cushion the impact of rising oil prices. Meanwhile, efforts to strengthen food and water security are being accelerated in response to climate risks, including a potentially prolonged dry season. On the external front, Indonesia continues to deepen strategic partnerships, particularly with Japan, to support investment and economic resilience. Overall, while domestic fundamentals remain relatively stable, the balance of risks is shifting toward external vulnerabilities, particularly from energy, climate, and global growth dynamics.