Jakarta. A surge in global crude oil prices driven by escalating tensions in the Middle East could trigger a massive shift among Indonesian consumers toward subsidized fuels, potentially placing additional strain on the state budget and widening the fiscal deficit.

Indonesia currently caps subsidized fuel prices at Rp 10,000 per liter ($0.59) for Pertalite gasoline and Rp 6,800 per liter for diesel, creating a widening gap with market-based fuel prices.

Abra Talattov, a researcher at the Institute for Development of Economics and Finance (Indef), said the growing price disparity between subsidized and non-subsidized fuels could incentivize consumers to switch. Retail fuel prices are expected to rise in early April, further increasing the gap.

“When the price disparity widens, the risk of migration becomes inevitable. Consumption of subsidized fuels such as Pertalite and diesel could surge,” Abra said on Tuesday.

The government has set this year’s subsidy quotas at 29.7 billion liters for Pertalite and 18.6 billion liters for diesel. However, these allocations could be depleted quickly if demand spikes without mitigation measures.

Economists estimate that every $1 increase in crude oil prices, a Rp 100 depreciation in the rupiah against the US dollar, and a 0.1% rise in government bond yields could add up to Rp 9.5 trillion ($562 million) to the budget deficit. This projection accounts only for macroeconomic variables and excludes additional pressure from increased subsidy volumes due to shifting consumption patterns.

Energy security remains another concern. Indonesia’s fuel reserves currently cover only about 25 days of demand, well below the minimum 90-day benchmark recommended by the International Energy Agency (IEA).

While the government aims to expand reserves to meet international standards, achieving this target is expected to take two to three years and require significant investment.

To maintain stability, Abra urged the government to tighten fuel distribution controls and boost domestic oil production, which remains stagnant at around 600,000 barrels per day.

“This would help extend fuel reserves and prevent public anxiety that could lead to panic buying,” he said.

Abra added that a planned work-from-home (WFH) policy could help curb fuel consumption, though its impact would likely be limited if implemented only once a week.

He described WFH as a short-term emergency measure to reduce mobility, noting that similar restrictions during the Covid-19 pandemic in 2020 led to a roughly 12.9% annual decline in national fuel consumption.

Beyond temporary measures, Abra stressed the need for longer-term behavioral changes, including greater reliance on public transportation to improve energy efficiency.

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