Indef: Infrastructure Business Actors Need To Anticipate The Impact Of The Iran-Israel Conflict

Illustration. (Photo: Doc. Antara)

JAKARTA - Deputy Director of the Institute for Development of Economics and Finance (Indef) Eko Listiyanto advised business actors and investors in infrastructure to take a number of steps when implementing infrastructure projects rationally by prioritizing safety and security and carrying out hedging in anticipation of the impact of the Iran-Israeli conflict.

"While waiting for geopolitical tensions in the Middle East to subside, business actors or investors must carry out infrastructure projects rationally while still prioritizing safety and security," said Eko in Jakarta, quoted from Antara, Wednesday, April 17.

He also said that business actors and investors also need to anticipate the possible impact of the Israeli-Iran conflict by doing hedging. So when business actors or investors carry out infrastructure projects, they are protected from risks such as fluctuations in the Rupiah exchange rate.

By doing hedging, although later the import price will increase due to the currency exchange rate, business actors will already have a contract guarantee at the beginning that the price of those who receive it is not affected by the risk of an increase in the currency exchange rate.

The Indef economist considered that the impact of the Iran-Israeli conflict on risk infrastructure was mainly on overhead, because when this conflict occurred it had a direct impact it was the volatile financial sector, especially the weakened Rupiah exchange rate against the US dollar.

If the Rupiah exchange rate weakens against the US dollar, of course, when project owners carry out infrastructure development using the assumption that the Rupiah exchange rate against the US dollar is IDR 15,000 - IDR 15,500 against 1 US dollar. If it has increased by IDR 1,000 above assumptions then this can affect its overhead such as the cost of providing materials, tools, and construction technology such as cement, steel to smart building technology.

This certainly has an impact on increasing the overhead, meaning that the project value or cost of implementing infrastructure projects will also increase. And that is usually when the Rupiah exchange rate gets weaker, project contractors and investors must recalculate the costs and timeframe of project implementation. Indeed, it is usually mitigated with contracts that minimize these kinds of impacts.

The second thing, according to Eko, is that the most likely fundamental is the cost of energy or fuel. So the whole phenomenon affects where Iran is one of the main oil suppliers at the global level.

"If the Iran-Israeli conflict is sustainable, it is possible that world oil prices could penetrate 100 US dollars per barrel, and this could destabilize infrastructure projects," said Eko.

He continued, because apart from the aspect of raw materials for construction materials, efforts to distribute these materials also require fuel. This will be a concern, where distribution costs are increasing and ultimately the selling price of construction materials and the cost of implementing infrastructure projects are affected. So the main risk here.

"I think the global supply chain in the infrastructure sector may be affected by the import of machinery, heavy equipment or infrastructure technology if it is related to the global supply chain. For the supply chain of materials or raw materials for construction, Indonesia does not import from other countries. However, related to heavy equipment, construction machines, or technology such as for smart and green building, Indonesia still imports these things," he said.