Indonesia Considers Fuel Price Hike as Oil Prices Surge, Threaten State Budget

LONDON – Indonesia’s government is weighing potential adjustments to subsidized fuel prices as surging global oil prices threaten to strain the national budget. The move comes amid heightened geopolitical tensions in the Middle East, which are disrupting supply chains and driving up energy costs worldwide. The possibility of increased fuel costs is raising concerns about potential inflationary pressures within the Indonesian economy.

The situation is particularly sensitive given the government’s commitment to maintaining economic stability and affordability for its citizens. Indonesia, a large net importer of oil, is vulnerable to fluctuations in the international market. Rising oil prices directly impact the cost of fuel subsidies, a significant component of the state budget. Without intervention, officials warn, the country’s fiscal deficit could widen considerably.

Geopolitical Risks and Rising Oil Prices

Escalating tensions in the Middle East are a primary driver of the current oil price surge. Specifically, the disruption of operations at Saudi Aramco’s Ras Tanura refinery following drone attacks, coupled with the broader conflict between Israel and Iran, has injected significant uncertainty into the global energy market. According to reports, the potential closure of the Strait of Hormuz, a critical chokepoint for oil tankers, represents a worst-case scenario that could send prices soaring even further.

The Strait of Hormuz is a narrow waterway connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea. Approximately 20% of the world’s oil supply passes through this vital shipping lane. Any disruption to traffic through the strait would have a significant impact on global energy markets, potentially leading to supply shortages and price spikes. The Indonesian government is closely monitoring the situation and assessing the potential risks to its energy security.

Government Response and Fiscal Considerations

Indonesia’s Minister of Finance, Purbaya Yudhi Sadewa, revealed on Friday, March 6, 2026, that the government has been running simulations to assess the impact of various oil price scenarios on the state budget. According to statements made during a meeting with journalists, if the average oil price reaches $92 per barrel, the budget deficit could increase to 3.6 to 3.7 percent of Gross Domestic Product (GDP).

To mitigate this risk, the government is considering a range of options. These include adjustments to state spending, prioritizing programs with a direct impact on the population, and potentially delaying or postponing less urgent projects. Yet, Minister Purbaya acknowledged that if budgetary pressures grow too intense, an increase in subsidized fuel prices may be unavoidable. “If the budget really can’t cope, there’s no other way, we have to share the burden with the public to some extent. That means a fuel price increase if that happens,” he stated.

Balancing Fiscal Health and Social Impact

The decision to adjust fuel prices is a delicate one, as it could have significant social and economic consequences. Fuel subsidies are intended to keep energy costs affordable for consumers, particularly low-income households. An increase in fuel prices could lead to higher transportation costs, increased inflation, and reduced purchasing power for many Indonesians. The government is therefore seeking to strike a balance between maintaining fiscal stability and protecting vulnerable populations.

Beyond adjusting fuel prices, the government is also exploring ways to reduce Indonesia’s reliance on imported oil. The Center of Economic and Law Studies (Celios) has advocated for accelerating the transition to renewable energy sources, such as hydropower, wind power, and solar power. Promoting the adoption of electric vehicles (EVs) for public transportation could help reduce the country’s dependence on imported fuel.

Budgetary Adjustments and Potential Savings

In addition to potential fuel price adjustments, the Indonesian government is actively seeking ways to optimize its budget and identify potential savings. This includes a review of existing spending programs to identify areas where funds can be reallocated or reduced. Minister Purbaya emphasized the importance of prioritizing spending that directly benefits the public, while deferring or canceling projects that are not considered essential.

The government is also considering a revision of the State Budget (APBN) to provide additional fiscal space. Celios estimates that an additional IDR 340 trillion (approximately $22.3 billion USD as of March 6, 2026) may be needed to maintain the budget deficit within acceptable limits. However, the government is committed to avoiding further increases in debt and will prioritize reallocating funds from non-priority areas.

Recent Subsidy Reforms

Indonesia has already begun to implement some reforms to its fuel subsidy program. According to VOI News, the government proposed cutting subsidies and fuel compensation oil (BBM) in 2025, projecting savings of IDR 67.1 trillion. These initial steps demonstrate a commitment to fiscal responsibility and a willingness to address the long-term sustainability of the subsidy program.

Looking Ahead

The coming weeks and months will be critical for Indonesia as it navigates the challenges posed by rising oil prices and geopolitical instability. The government will continue to monitor the situation closely and assess the potential impact on the economy. Further announcements regarding fuel prices and budgetary adjustments are expected as the situation evolves. The government’s ability to effectively manage these challenges will be crucial for maintaining economic stability and ensuring the well-being of its citizens.

The next key development to watch will be the government’s official announcement regarding the revised State Budget (APBN), expected in the coming weeks. This will provide a clearer picture of the government’s plans for addressing the fiscal challenges posed by rising oil prices. Readers are encouraged to follow official government channels for the latest updates, and information.

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