Jakarta. Indonesia’s markets took a hit as fears of a broader Middle East war triggered heavy foreign selling, pushing stocks, the rupiah, and bonds lower.

The turmoil followed a weekend attack by Yemen-based Houthi forces on Israel, alongside reports that the United States may launch a ground offensive against Iran, raising fears of a wider regional conflict.

The Jakarta Composite Index (JCI) briefly fell more than 2% to 6,945 before trimming losses to close at 7,091 on Monday, down 0.08% from the previous session. Year-to-date, the index has plunged 17.9%, making it one of the worst-performing markets globally.

The decline was driven largely by foreign outflows, which reached Rp 31 trillion ($1.82 billion) so far this year, far exceeding the Rp 17 trillion recorded in 2025. Pressure was also evident in the bond market, where the yield on 10-year government securities rose 0.37 percentage points over the past month to 6.85%.

Meanwhile, the rupiah weakened to as low as Rp 17,000 per US dollar before closing at Rp 16,987. Analysts expect further depreciation toward Rp 17,100 in the near term, with downside risks extending to Rp 17,400 in the third quarter. In a more extreme scenario, some projections point to Rp 20,000 per dollar.

Oil shock amplifies pressure

Analysts said the geopolitical escalation has pushed global crude prices up by around 3% to $102 per barrel, with risks of further disruption to key shipping routes such as the Red Sea and Bab al-Mandab Strait.

Higher oil prices are seen as negative for Indonesia’s fiscal outlook, as the government may need to increase fuel subsidies to maintain domestic price stability.

CEO of Edvisor Profina Visindo Praska Putrantyo warned that in a worst-case scenario, the JCI could fall to 6,090–6,532, especially if oil prices climb toward $120 per barrel.

“As a result, interest rates could rise rather than fall,” he said.

Associate Director of Research and Investment at Pilarmas Investindo Sekuritas Maximilianus Nico Demus noted unusual volatility in Monday’s session, suggesting efforts to keep the index above the psychological 7,000 level.

“The market is facing persistent volatility and uncertainty, and pressure on Indonesia will continue as long as external risks remain elevated,” he said.

He added that weakening fiscal credibility and recent rating outlook downgrades by agencies such as Fitch Ratings signal growing pressure on Indonesia’s economic fundamentals.

Despite the sell-off, analysts see selective opportunities, particularly in energy and commodity-linked stocks that may benefit from rising global prices.

Market analyst and founder of Republik Investor Hendra Wardana said the market has entered a “risk-off” phase, with oil prices potentially rising to $130–150 per barrel if tensions escalate further.

“In that scenario, inflation could spike, interest rates remain higher for longer, and the rupiah weaken further,” he said.

Still, he believes any drop below 7,000 may be temporary, with 6,800–6,900 acting as a strong support level given Indonesia’s relatively stable fundamentals.

Rupiah outlook

Currency analyst Ibrahim Assuaibi said markets remain cautious over the possibility of a broader conflict involving Iran.

“The rupiah is expected to move in a volatile range of Rp 17,000–17,040 per US dollar, with a peak depreciation potentially reaching Rp 17,400 in the third quarter,” he said.

He added that expectations of prolonged high interest rates by the Federal Reserve are strengthening the US dollar and putting pressure on emerging market currencies.

Anthony Budiawan, Managing Director of Political Economy and Policy Studies (PEPS), also warned that escalating tensions between Iran, the United States, and Israel could threaten rupiah stability.

“In a worst-case scenario, a depreciation toward Rp 20,000 per US dollar is no longer just speculation, but a real risk increasingly supported by historical data,” he said.

Policy challenge

Mirae Asset senior market analyst Nafan Aji Gusta emphasized the importance of maintaining fiscal discipline and policy coordination amid rising risks.

He said Indonesia’s fundamentals remain relatively solid, supported by around 5% GDP growth and strong domestic consumption.

“However, fiscal discipline, monetary stability, and continued capital market reforms are crucial to maintaining investor confidence amid external pressures,” he said.