Israel-Iran Conflict Heats Up, is the Energy Subsidy Budget Safe?

Illustration (Photo: Doc. ANTARA)

JAKARTA - Director General of Oil and Gas (Migas) of the Ministry of Energy and Mineral Resources (ESDM) Tutuka Ariadji estimates that in the short term the conflict between Iran and Israel will cause the price of Indonesian crude oil or the Indonesian Crude Price (ICP) to also soar.

Based on the results of a study by the Ministry of Energy and Mineral Resources, Tutuka estimates that there will be an increase of 5 to 10 US dollars per barrel in the near future.

Even in the short term after Iran's attack on Israel, world crude oil prices are expected to soar to 100 US dollars per barrel.

Meanwhile, in the macroeconomic assumptions of the 2024 State Budget (APBN), the government has set the ICP at 82 US dollars per barrel.

"But in my opinion, the increase is a spike but continues to fall again, but we must not be careless. In conditions like this, even the slightest mistake is a big one," said Tutuka when met by media crew at the Ministry of Energy and Mineral Resources Building, Tuesday, April 16.

Regarding the impact on energy subsidies, Tutuka said that if there is an increase in ICP of 5 to 10 dollars per barrel, it will be followed by an increase in Non-Tax State Revenue (PNBP). Not only PNBP, the increase will also be followed by a larger increase in subsidies.

Previously in his presentation at the webinar 'An Exciting Chat on the Impact of the Iran-Israel Conflict on the Indonesian Economy', Tutuka explained that for every increase in ICP of 1 US dollar per barrel, it will result in an increase in PNBP of IDR 1.8 trillion and an increase in subsidies of IDR 1.8 trillion, while compensation will also increase to IDR 5.3 trillion

Then for the increase in the exchange rate, every IDR 100 per dollar will result in an increase in PNBP of IDR 1.8 trillion, an increase in energy subsidies of around IDR 1.2 trillion, and compensation of IDR 3.9 trillion.

Regarding compensation subsidies for diesel fuel and LPG, if the ICP is estimated to increase to 100 US dollars per barrel at an exchange rate of IDR 15,900 per dollar, then fuel subsidies and compensation will increase to IDR 200 trillion to IDR 250 trillion from the APBN assumption of around IDR 161 trillion.

Meanwhile, LPG subsidies will increase to IDR 106 trillion from the APBN assumption of IDR 83.2 trillion.

"The LPG subsidy is large, then diesel will be large. The increase for additional subsidies is greater than the PNBP revenue. It must be taken into account," continued Tutuka.

Even though the government estimates an increase in the ICP, Tutuka confirmed that the government will still hold fuel prices until June.

"Until now, we have not (planned to increase fuel prices). Because I think we should go step by step in terms of policy. In terms of preparations, we will do the worst, but in terms of policy decisions, don't be hasty," concluded Tutuka.