As A Result Of The Israel-Iran Conflict, The Government Is Advised To Increase Fuel Prices

Crude Oil (Photo: Unsplash)

JAKARTA - Energy Economy Observer at Gadjah Mada University (UGM), Fahmywahi advised the government to increase the price of subsidized fuel.

Fahmy explained that the Iran-Israeli conflict has the potential to increase world oil prices which will trigger an increase in domestic fuel oil prices (BBM).

The reason is that the location of the conflict around the Strait of Hormuz will disrupt the world's oil supply chain route, hampering oil supply and increasing distribution costs that increase world oil prices.

"Especially before the outbreak of the world oil price conflict has risen in the range of 89 US dollars per barrel, the potential for an increase in world oil prices will continue as the Iranian-Israel strain escalation expands," Fahmy said in a statement received by VOI, Wednesday, April 17.

As a net-importer, he continued, the increase in world oil prices will certainly affect fuel prices in Indonesia, even potentially above the assumptions of the Indonesian Crude Price (ICP) and the assumption of the 2024 State Budget which is set at 82 US dollars per barrel.

In conditions of uncertainty in world oil prices, Fahmy said, the government through the Coordinating Minister for the Economy Erlangga Hartarto guaranteed that the Government would not increase the price of subsidized fuel until June 2024, the Government would only adjust the direction of energy subsidies.

"If the escalation of the Iran-Israeli conflict expands, it is inevitable that world oil prices will soar, it could even reach above 100 US dollars per barrel," he continued.

Under these conditions, he assessed that the government was faced with a dilemma in determining domestic fuel prices. If the price of subsidized fuel is not increased, the burden on the state budget will swell.

In addition, the increase in world oil prices will further drain foreign exchange to finance fuel imports.

"In the end, the rupiah exchange rate has weakened against the US dollar, which had penetrated Rp. 16,000 per US dollar. If the price of subsidy fuel is increased, it will certainly trigger inflation which will cause an increase in prices for basic necessities so as to reduce people's purchasing power," he explained.

For this reason, in conditions of uncertainty in world oil prices due to the Iran-Israil conflict, Fahmy asked the government not to give false hopes to the people by ensuring that the subsidized fuel price would not be increased until June 2024.

"The government should make realistic decisions based on measurable indicators, one of which is world oil prices. If world oil prices are still below 100 US dollars per barrel, the price of subsidy fuel does not need to be increased. However, if world oil prices reach above 100 US dollars per barrel, the price of subsidized fuel should be increased, while providing Direct Cash Assistance (BLT) to the poor who are affected," concluded Fahmy.