Overview

Indonesia’s economic environment is increasingly shaped by the global energy shock triggered by escalating tensions in the Middle East. Oil prices have surged sharply, briefly reaching USD 115 per barrel, raising concerns over inflation, fiscal subsidies, and energy security. Despite the spike, the government has pledged to maintain subsidized fuel prices at least until the Eid holiday to protect household purchasing power. Fiscal resilience remains a key focus, supported by strong tax revenue performance early in 2026, which provides additional fiscal space to absorb external shocks. However, authorities acknowledge that prolonged high oil prices could eventually strain the state budget and force adjustments to subsidy policies. At the same time, global energy disruptions are prompting governments worldwide to consider emergency measures, including fuel price controls as seen in South Korea. Domestically, energy security is being reinforced through coal supply arrangements for PLN to ensure electricity generation stability. The broader macro backdrop suggests Indonesia is navigating a delicate balance between fiscal discipline, energy affordability, and economic stability. Overall, the combination of strong tax revenue, cautious fiscal policy, and energy supply planning provides short-term resilience, though prolonged geopolitical disruptions remain a key downside risk.