Dr. Fahmy Radhi, an energy economics analyst at UGM, stated that the Iran-Israel conflict could raise global oil prices, increasing domestic fuel prices.
He mentioned this due to the conflict’s location around the Strait of Hormuz, which could disrupt the world’s oil supply chain, thus hindering oil supply and raising distribution costs.
“There is potential for an increase in global oil prices. Especially since before the conflict erupted, the price of oil was already rising in the range of US $89 per barrel, the potential increase in global oil prices will continue as tensions escalate between Iran and Israel,” he said on Wednesday (Apr. 17).
He explained that as a net importer, the increase in global oil prices would affect fuel prices in Indonesia, potentially exceeding the assumption of the Indonesian Crude Price (ICP) set at US $82 per barrel in the 2024 state budget.
He also mentioned that in the face of uncertainty in global oil prices, the government, through the Coordinating Minister for Economic Affairs, guarantees that it will not raise subsidized fuel prices until June 2024.
He mentioned that the government would only adjust the direction of energy subsidies. However, if the escalation of the Iran-Israel conflict spreads, global oil prices could skyrocket.
“It is even estimated to exceed US $100 per barrel. In such conditions, the government faces a dilemma in setting fuel prices domestically,” he explained.
According to him, the state budget will swell if subsidized fuel prices are not raised. Furthermore, the increase in global oil prices will further drain foreign exchange reserves to finance fuel imports.
Ultimately, this will weaken Rupiah’s exchange rate against the US dollar, which has already reached Rp16,000 per US dollar. Meanwhile, raising subsidized fuel prices will certainly trigger inflation, increasing the prices of basic necessities and thus reducing people’s purchasing power.
“In this situation of uncertainty in global oil prices due to the Iran-Israel conflict, the government should not give false hope to the people by guaranteeing that subsidized fuel prices will not be raised until June 2024. The government should make realistic decisions based on measurable indicators, one of which is global oil prices,” he said.
Therefore, he suggests that subsidized fuel prices should not be raised if global oil prices are below US $100 per barrel. However, if they reach above US $100 per barrel, subsidized fuel prices should be raised while providing cash assistance to poor people affected.
Author: Agung Nugroho
Image: Freepik.com