Indonesia’s senior economic minister has warned that sustained high oil prices driven by the conflict in the Middle East involving Iran could push the country’s budget deficit beyond its legal ceiling of 3% of GDP.
Indonesia’s Coordinating Minister for Economic Affairs, Airlangga Hartarto, said on Friday 13th March that the government may impose additional taxes on key commodities to offset pressure from rising global oil prices.
Speaking at a national cabinet briefing, Mr Airlangga said Indonesia could introduce extra levies on commodities including palm oil, nickel, gold, and copper. The country is a major global commodities producer and the world’s largest exporter of palm oil and nickel.
During the same session, President Prabowo Subianto indicated that austerity measures might also be implemented to reduce the economic impact of higher oil prices.
Mr Airlangga said government modelling showed the difficulty of keeping the fiscal deficit below the constitutionally mandated ceiling if oil prices remained elevated due to the Iran war. Maintaining the limit would require either significant spending reductions or slower economic growth.
“These are scenarios we may have to discuss,” Mr Airlangga said, adding that officials had also considered issuing an emergency order if the deficit cap needed to be exceeded.
The government has prepared three projections showing how the Middle East war could affect Southeast Asia’s largest economy.
In the first scenario, the conflict continues for five months and crude oil averages US$86 a barrel in 2026. Economic growth would remain at 5.3%, but the fiscal deficit would reach 3.18% and the rupiah would weaken to 17,000 per US dollar.
Under a second scenario with crude averaging US$97 a barrel, growth would slow to 5.2% and the deficit would widen to 3.53%.
The worst-case scenario assumes crude averaging US$115 a barrel, which would push the deficit above 4% of GDP.
Global oil markets reflected growing concern on 13th March as supply disruptions in the Gulf linked to the Middle East conflict overshadowed attempts by the US and the International Energy Agency to ease pressure through additional supply.
Brent crude futures for May rose 88 US cents, or 0.9%, – US$101.34 a barrel at 0918 GMT and were on track for a weekly gain of 9%. US West Texas Intermediate crude for April rose 26 US cents, or 0.3%, – US$95.99 a barrel, heading for a weekly increase of 6%.
Goldman Sachs said the same day that Brent oil would average more than US$100 a barrel in March and US$85 in April, citing the ongoing war, damage to energy infrastructure in the Middle East, and disruptions in the Strait of Hormuz.
Indonesia’s 2026 state budget had been based on more moderate assumptions, including a benchmark crude price of about US$70 a barrel and a stronger rupiah.
The sharp increase in oil prices has intensified fiscal pressure, particularly through higher energy subsidy costs. Indonesia imports significant volumes of fuel while maintaining domestic price controls.
The rupiah has also weakened amid the global developments, trading around 16,900–17,000 per US dollar in mid-March, close to the levels outlined in the government’s stress scenarios.
Mr Airlangga’s remarks highlight the fiscal challenge facing President Prabowo Subianto’s administration, which is pursuing ambitious social programmes while attempting to maintain fiscal discipline.
Any breach of the 3% deficit rule would require legislative changes or exceptional measures and could affect investor confidence and credit ratings.
The situation also reflects broader vulnerabilities faced by commodity-dependent emerging economies during geopolitical instability in energy-producing regions. Indonesia’s potential response, including targeted commodity taxes, is aimed at raising additional revenue without significantly weakening export competitiveness in sectors where the country holds dominant global market positions.
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