Jakarta. Indonesian businesses are facing potential production disruptions as escalating tensions in the Middle East drive up raw material costs and threaten global supply chains, the Indonesian Employers Association (Apindo) said on Tuesday.

The conflict involving Iran, Israel, and the United States is beginning to ripple through Indonesia’s economy, raising concerns over shortages of key industrial inputs and the risk of stalled production.

Apindo’s labor affairs chairman, Bob Azam, said companies are facing mounting uncertainty as global economic conditions weaken and supply chains tighten.

“We don’t know whether in April or May we can still maintain production. This is the situation we are dealing with,” he told lawmakers during a hearing with the House of Representatives’ Commission IX.

One of the most immediate pressures is a shortage of naphtha-based plastics — a petroleum derivative widely used in packaging. The scarcity has pushed plastic prices up by as much as 60%, according to Apindo, threatening industries such as food and beverages that rely heavily on plastic packaging.

The impact is also spreading to other sectors dependent on imported inputs. Fertilizer producers, for example, face rising costs due to their reliance on natural gas, while broader manufacturing industries are grappling with higher energy and logistics expenses.

Bob warned that inconsistent access to raw materials and fuel could force companies into “stop-and-go” production cycles, where factories operate intermittently depending on supply availability.

“When materials are available, we run. When they’re not, we stop,” he said, adding that businesses must prepare for worst-case scenarios, including temporary halts in production.

Despite the mounting pressure, Apindo urged companies not to rush into layoffs, even as costs surge. Instead, firms are attempting to absorb higher expenses through efficiency gains and productivity improvements to avoid passing price increases on to consumers.

“We hope this difficult period does not push us to raise prices,” Bob said.

Still, Apindo warns of a growing risk of stagflation — a combination of rising prices and weakening purchasing power — which could prove more damaging than standard inflation.

“If prices rise but purchasing power falls, that’s a much worse situation,” Bob said.

Lawmakers shared those concerns. Edy Wuryanto, a member of Commission IX, said surging raw material costs could eventually trigger layoffs, particularly in industries heavily dependent on imports.

“Production costs are rising sharply. This could lead to layoffs if supply disruptions persist,” he said, noting that some plastic inputs have become up to 50% harder to source.

In response, parliament is coordinating with Apindo to assess the impact on industry, while the government has been urged to prepare mitigation measures for affected workers.

Apindo also called for policy adjustments to help businesses navigate the crisis, including more flexible import regulations. Quota restrictions, it said, often delay access to critical materials.

“Imports should not be constrained by rigid quotas. By the time quotas are available, the goods may no longer exist,” Bob said.

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