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The Middle East Conflict Has The Potential To Trigger Significant Disruptions In The Global Energy Market

Researcher Yusuf Rendy Manilet from the Center of Reform on Economics (CORE) Indonesia stated that geopolitical tensions in the Middle East have the potential to trigger significant shocks in the global energy market.

"The geopolitical tensions in the Middle East, particularly between Iran and Israel, could potentially lead to major disruptions in the global energy market," he remarked to ANTARA in Jakarta on Monday.

He noted that the greatest threat from this conflict to the Indonesian economy arises from the potential surge in global oil prices.

Indonesia is no longer a net oil exporter, meaning that any increase in crude oil prices directly affects import costs and puts pressure on the trade balance.

The most immediate impact is felt on the exchange rate of the rupiah.

As oil prices rise and global uncertainty escalates, he continued, investors tend to withdraw funds from emerging markets, including Indonesia, to shift towards various safe-haven assets such as the US dollar or gold. This results in a depreciation of the rupiah.

"We have observed this pattern repeatedly during previous global crises; geopolitical tensions directly trigger currency market volatility," Yusuf explained.

The depreciation of the rupiah is then expected to have serious fiscal implications, particularly concerning the government's subsidy burden.

When global oil prices rise and the rupiah weakens, he stated, the economic price of fuel oil (BBM) will automatically surge.

However, if the government maintains the subsidized prices of BBM such as pertalite and solar, the difference between market prices and selling prices must be borne by the state budget (APBN) in the form of additional energy subsidies.

"This means that fiscal space becomes increasingly constrained, which could disrupt other budget priorities such as infrastructure development, education, or health," he remarked.

This situation is also perceived to evoke a sense of deja vu regarding the economic impacts experienced at the onset of the Russia-Ukraine war.

At that time, the escalation of conflict led to a sharp increase in commodity prices, financial market uncertainty, and significant pressure on national energy subsidies.

"Although the magnitude of the Iran-Israel conflict is not yet as severe as Russia's invasion of Ukraine, it does not mean that the impact can be underestimated. On the contrary, due to the potential for this conflict to expand in a region that is a global energy hub, serious anticipatory measures must be taken," Yusuf stated.

Citing Anadolu Agency, crude oil prices surged by 11 percent over the past week ending June 19, due to escalating geopolitical tensions between Israel and Iran reaching a new peak.

This has raised concerns about potential disruptions to supply and trade in the Middle East.

The spot price of Brent crude oil, which serves as a global benchmark, increased from a closing level of 69.65 USD per barrel on June 12, the day before Israel launched attacks on Iranian targets, to 77.32 USD per barrel on June 19. During the same period, West Texas Intermediate (WTI) also saw an increase of 11 percent.

Despite this recent rise, Brent oil prices remain below the average for 2024, which is set at 80 USD per barrel.

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Tag: Global Energy Market Middle East Conflict Yusuf Rendy