The Indonesian government has implemented emergency measures to cushion the impact of the war in the Middle East, including scaling back free meals for schoolchildren, promoting remote work, curbing spending, expanding the biodiesel program, and rationing subsidized fuel [1]. Economists and business leaders warn that these responses may backfire by reducing productivity, consumer demand, and ultimately slowing economic growth, which is already under pressure from external shocks [1]. Budi Santoso, a senior economist at Universitas Indonesia, highlighted that remote work and spending restrictions could save fuel but risk dampening overall economic activity [1].
Business groups, led by Suryani Motik, chair of Indonesia's business lobby, have urged the government to consider more flexible fiscal policies, such as raising the deficit cap, to provide necessary stimulus and support during the crisis [1]. The energy crisis has triggered a decline in manufacturing activity, with Indonesia and Vietnam's PMIs dropping after the Iran war began [1]. Southeast Asian companies have lost over $200 billion in market value, reflecting heightened risk aversion and volatility across equity markets [1].
Commodity markets are experiencing sharp reactions, with fertilizer prices spiking and shortages looming due to regional supply chain disruptions [1]. Indonesia's government is preparing to ration subsidized fuel and accelerate energy transition plans under President Prabowo, but analysts caution that these steps may not be sufficient to stabilize markets [1]. Technical analysis of Indonesian equities shows increased resistance at key price levels, with the Jakarta Composite Index struggling to break above 7,000 amid heavy selling pressure; traders are watching for support near 6,800, but bearish sentiment prevails as geopolitical risks persist [1].
Economists warn of the risk of stagflation if energy shortages continue and fiscal tightening limits growth, emphasizing the delicate balance the government must strike between conserving resources and ensuring emergency policies do not undermine economic recovery [1].
CONCLUSION
Indonesia's emergency response to the energy crisis, triggered by the Middle East conflict, is causing concern among economists and business leaders about its potential to slow economic growth and increase market volatility. With manufacturing activity declining and equity markets under pressure, the government faces a challenging task in balancing resource conservation with the need to support investment and consumption. The risk of stagflation and persistent bearish sentiment highlight the urgency for more flexible fiscal policies to stabilize the economy.