Jokowi Summons BI Governor and Several Ministers to Discuss Iran-Israel Impact Response

President Jokowi summoned Bank Indonesia Governor Perry Warjiyo and a number of ministers to discuss developments in the global situation.

KOMPAS/MAWAR KUSUMA WULAN

President Joko Widodo gave a press statement following his inspection of the smoothness of Eid homecoming at Senen Station, Jakarta, on Monday (8/4/2024). The President mentioned that the Eid homecoming flow from Senen Station was well-managed and orderly. The President plans to celebrate Eid al-Fitr in Jakarta.

JAKARTA, KOMPAS - President Joko Widodo led a limited meeting at the Presidential Palace in Jakarta, on Tuesday (16/4/2024), to discuss the global situation. Policy strategies are needed to respond to the global economic turmoil triggered by the escalation of the conflict in the Middle East last weekend.

Based on Kompas's monitoring, present at the meeting were Coordinating Minister for Economic Affairs Airlangga Hartarto, Minister of Energy and Mineral Resources Arifin, Minister of Foreign Affairs Retno Marsudi, and Deputy Minister of Finance Suahasil Nazara. Also present was the Governor of Bank Indonesia Perry Warjiyo.

The agenda mentioned in the meeting schedule was a Limited Meeting with the President of the Republic of Indonesia regarding the Global Situation Development. The meeting started at 10:00 AM and ended around 11:30 AM.

The global economy was in turmoil last weekend following Iran's air attack on Israel on Sunday (14/4/2024). The immediate impact detected was the increase in world crude oil prices.

Iran conducted an air attack on Israel for several hours from midnight on Saturday (13/4/2024) until Sunday (14/4/2024) morning. The Iranian government declared that the attack was retaliation for Israel's attack on the Iranian Consulate in Damascus on April 1.

Although Iran's attack has stopped on Sunday morning, the risk of escalating conflict remains open. This heated and unpredictable situation has the potential to have negative impacts on the global economy. The direct impact that has already occurred is the increase in world oil prices, which is usually followed by a rise in the prices of other commodities.

The news of Iran's potential attack on Israel only began circulating on Friday (12/4/2024), yet world oil prices have already skyrocketed. Refinitiv, a website that records economic and commodity data, reported that the price of Brent oil reached 90.45 US dollars per barrel at the close of trading on Friday (12/4/2024).

This is the highest oil price since October 20, 2023 or about the past six months. This price has exceeded the assumption of Indonesia Crude Price (ICP) set in the State Revenue and Expenditure Budget (APBN) 2024 of 82 US dollars per barrel.

AP PHOTO/ARIEL SCHALIT

Batteries of Israel's Iron Dome defense missile system deployed to intercept rockets in Ashkelon, southern Israel, August 7, 2022. Attacks that came from drones and Iranian ballistic missiles on Sunday (14/4/2024) caused turmoil in global economy.

Lecturer at the Faculty of Earth and Energy Technology, Trisakti University, Jakarta, Pri Agung Rakhmanto, Sunday, stated that the impact of the Iran-Israel conflict was fundamental to world oil supply and demand. Thus, its elasticity to increases in world oil prices is greater than the Russia-Ukraine and Israel-Hamas wars.

It is considered fundamentally impactful because, on one hand, Iran is one of the dominant members of OPEC. This position can pressure OPEC in the form of crude oil production quotas and pricing policies.

On the other hand, Israel is a US ally and also the world's largest producer and consumer of oil. "So, the Iran-Israel conflict is directly related to the fundamental supply and demand of world oil," said Pri.

Not to mention other variables that will affect the formation of world oil prices, namely China and Russia. China is one of the world's largest oil consumers, while Russia is one of the largest exporters in the world.

"If this (Iran-Israel conflict) continues and let's say the duration is prolonged, the possibility of oil prices exceeding 100 US dollars is open. This is because the price has already remained relatively high. The price in the range of 80 US dollars has been considered high in terms of commodities that have been impacted by energy transition issues and weak global demand post-Covid," he explained.

The Director-General of Oil and Gas at the Ministry of Energy and Mineral Resources, Tutuka Ariadji, stated that currently the government sees the situation as still short-term. This was conveyed during an online discussion on the impact of the Iran-Israel conflict on the Indonesian economy held by the Eisenhower Fellowship Indonesia Association on Monday (15/4/2024).

"We need to be cautious because I think longer-term predictions will be less accurate. It will depend on the reactions of investors, producers, and consumers in assessing future risks. For example, how Israel's potential response will affect perceptions of market escalation. In the future, oil prices already contain geopolitical risks," said Tutuka.

However, with the oil price trend that has increased since early 2024, coupled with the conflict between Iran and Israel, according to Tutuka, oil prices could reach around 100 US dollars per barrel. This depends on the reactions from Israel and the United States.

The Ministry of Energy and Mineral Resources has created a simulation if the price of Indonesian oil (ICP) reaches 100-110 US dollars per barrel or far above the March 2024 ICP, which is 83.79 US dollars per barrel. In this scenario, non-tax state revenues (PNBP) from the energy sector will increase, but energy subsidies and compensation will skyrocket much higher.

If the ICP rises to $100 US dollars per barrel, with a exchange rate of Rp 15,900 per US dollar, the total subsidy and compensation for fuel oil (BBM) and liquefied petroleum gas (elipsi) will increase from Rp 244.18 trillion (assumed in the 2024 state budget) to Rp 356.14 trillion. If the ICP is $110 US dollars per barrel, subsidies will skyrocket to Rp 404.21 trillion.