Indef: Indonesia Must Be Ready To Face The Follow-up Impact Of The Iran-Israel Conflict

Illustration. (Photo: Unsplash)

JAKARTA - Ahmad Heri Firdaus' Institute for Development of Economics and Finance (INDEF) revealed that Indonesia needs to be prepared for the further impact of the conflict between Iran and Israel.

"Although it does not have a direct impact, the conflict has the potential to trigger global economic instability, including the energy, trade, and national fiscal sectors," Ahmad said in an INDEF public discussion entitled "Iran-Israeli War Impact on the Indonesian Economy", in Jakarta, quoted by Antara, Monday, July 30.

According to him, Iran is one of the countries with the third largest oil reserves in the world. If oil supplies from the country are disrupted, followed by the closure of the Strait of Hormuz trade route, global oil prices could spike sharply.

"About oil importing countries such as Japan, even Europe, of course experienced an increase in energy costs. If we look, the Middle East (oil export) is bigger to China, India, Europe, then these countries will certainly be affected first than Indonesia," said Ahmad.

From the results of the simulation using the Global Trade Analysis Project (GTAP) economic model, Ahmad projects that the Iran-Israel war has the potential to reduce Indonesia's economic growth by 0.005 percent.

Despite appearing to be small in numbers, the indirect impact could be even greater if major trading partner countries such as China and Japan were hit hard. In its analysis, China and Japan are predicted to experience a slowdown in economic growth by 0.037 percent and 0.048 percent as a result of the Iran-Israeli conflict.

In addition, Indonesia is also predicted to experience a decrease in import volume in various commodities, ranging from agricultural products, processed foods, metals, textiles, to petrochemical and heavy manufacturing products.

The increase in production input prices due to the surge in oil and gas prices has the potential to reduce Indonesia's export competitiveness. In a situation like this, according to him, the Indonesian government needs to immediately take anticipatory steps in the short term.

The main priority is to maintain domestic fuel and LPG price stability (LPG). Subsidized mechanisms need to be strengthened so that people's purchasing power is maintained and inflation does not spike sharply.

Then we can also diversify energy import sources. So, we divert oil imports from countries that conflict to non-conflict ones. Therefore, there needs to be acceleration in terms of energy cooperation in countries such as ASEAN, Australia, or others. So, there may be bilateral cooperation specifically in terms of energy trading," he said.

Another strategy is to expand and diversify the industrial supply chain. This is because the business world needs to be encouraged to find new partners in the provision of raw materials so that they do not depend too much on one region.

"So, not from that country-it continues, but can also be diversified to other countries to find sources of raw materials. Then of course what must be running is to encourage investment in the upstream industry, for example fertilizers, alternative fuels, as well as goods between or intermediate goods as raw materials for processing industries in Indonesia," said Ahmad.

He appealed to the government to also map the sectors most affected, especially manufacturing and agriculture, so that protection and stimulus policies can be directed on target.

These mitigation measures, according to Ahmad, are important so that Indonesia is not dragged deeper into global uncertainty.