Jakarta. Indonesia’s economy is forecast to only grow 4.5 percent year-on-year in 2025 if Israel doesn’t stop exchanging strikes with Iran, which could lead to soaring oil prices, according to an analyst.

More than a week has passed since the conflict between heavily armed Israel and Iran heightened. The world’s economic superpower and Israeli military backer, the United States, has also recently inserted itself into the war by bombing Iranian nuclear sites.

In response, the Iranian parliament agreed to close off the Strait of Hormuz, a vital trade route through which a fifth of the world’s oil supply flows, following US airstrikes.

“The spike in oil import costs will cause the inflation in the government-regulated prices to jump, amid a sluggish purchasing power. That’s not good. … As soon as oil prices increase, it’s the businesses and consumers who will bear the costs,” senior economist Bhima Yudhistira spoke to the Jakarta Globe on Monday.

“If the war lasts longer, the Indonesian economy will only grow 4.5 percent year-on-year [yoy] in 2025,” Bhima said.

Bhima went on to say that the Israel-Iran conflict would add another challenge to President Prabowo Subianto’s pursuit of an annual 8 percent economic growth. Indonesia’s growth usually falls within the 5 percent range, and it only booked 4.87 percent yoy in the first quarter.

“It’s going to be even more difficult for Indonesia to achieve that 8 percent growth because the external challenges have worsened. We also still have to deal with budget austerity measures,” Bhima said, referring to Prabowo’s instructions for his cabinet members to trim spending.

Indonesia’s economic growth slowed to 5.03 percent in 2024, slightly below the 5.05 percent recorded the previous year, official statistics showed. Washington’s strikes on Iran have caused the price of Brent crude oil, the international standard, to rise to $79 a barrel. Bhima said that crude oil prices could range between $80 and $83 early next month.

Chief Security Minister Budi Gunawan told reporters that Indonesia would continue to push for negotiations after the US joined the Israel-Iran war.

“The Indonesian government will encourage everyone to return to the negotiating table to permanently solve the conflict,” Budi said on Monday, commenting on the US’ intervention.

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