Jakarta. Chief Economic Affairs Minister Airlangga Hartarto said it would be difficult for Indonesia to keep its budget deficit below the legal ceiling of 3% of gross domestic product if global oil prices continue to climb, even as Finance Minister Purbaya Yudhi Sadewa argued the economy remains resilient enough to withstand another energy shock.

Presenting to President Prabowo Subianto at a plenary cabinet meeting at the State Palace in Jakarta on Friday, Airlangga warned that a prolonged surge in crude prices, driven by conflict involving Iran, the United States, and Israel, could put pressure on the 2026 state budget and force the government to weigh painful trade-offs between fiscal discipline and growth.

“With these various scenarios, it will be difficult for us to maintain the deficit at 3%, unless we want to cut spending and cut the president’s growth target,” Airlangga said.

Indonesia’s 2026 budget assumes an Indonesian Crude Price (ICP) of $70 per barrel. Airlangga said actual oil purchases in January and February were still below that level, at $64.41 and $68.79 per barrel, respectively. But he said global oil prices could exceed that assumption over the next 10 months if tensions in the Middle East fail to ease.

He outlined three scenarios. In the first, oil averages $90 per barrel over the next five months, the rupiah weakens to around 17,000 per US dollar, economic growth holds at about 5.3%, and yields on government bonds rise to 6.8%. Under that scenario, the budget deficit would widen to 3.18% of GDP.

In a second scenario, oil averages $97 per barrel over the next six months, the rupiah falls to around 17,300 per dollar, growth slows to 5.2%, and government bond yields rise to 7.2%. The deficit would expand to 3.53% of GDP.

In the worst-case scenario, oil reaches $115 per barrel over the next 10 months, the rupiah weakens to 17,500 per dollar, growth remains at 5.2%, and bond yields stay at 7.2%. In that case, the deficit could swell to 4.06% of GDP.

All three scenarios would breach Indonesia’s statutory 3% budget deficit cap under the 2003 State Finance Law.

Still, Finance Minister Purbaya Yudhi Sadewa pushed back against claims that the economy could deteriorate if oil prices spike further. In his own briefing to Prabowo, Purbaya said Indonesia had repeatedly shown it could maintain growth during periods of high energy prices, provided fiscal and monetary policy remained disciplined.

He pointed to 2007-2008, when Brent crude prices surged sharply and, he said, at times reached around $220 per barrel. Even then, Indonesia still posted economic growth of 4.6%, he said. He added that similar patterns were seen in 2011 and in 2022, when oil prices climbed above $100 per barrel but the domestic recovery continued.

“If we implement the right policies, even when oil prices fluctuate significantly, we have the experience and the tools to manage the impact,” Purbaya said.

Prabowo, for his part, called on Indonesians to reduce fuel consumption as the government moves to limit the fallout from higher energy prices and geopolitical turbulence.

“We must take proactive steps, including reducing fuel consumption. We cannot assume that we will always remain safe regardless of what happens globally,” the president said during the same cabinet meeting.

Indonesia is trying to respond on several fronts, from maintaining fiscal discipline to cutting dependence on imported fuel. The government is expanding biofuel blending, accelerating renewable energy projects, and planning strategic crude reserves to strengthen long-term energy security.

For now, officials see no immediate need to revise the state budget or raise domestic fuel prices. But even Purbaya acknowledges that a prolonged period of elevated oil prices could increase subsidy costs, weaken the rupiah, and complicate efforts to keep the budget deficit within legal limits.

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