Oil and Stability: Indonesia in the Wake of Iran’s Loss
Iranian President, Ebrahim Raisi, was announced dead on Monday, 19 May 2024 in a helicopter crash. This news shook the world amidst the rising tensions in the Middle East over the genocide happening in Palestine. The Jakarta Post reported that Hamas in Palestine, Hezbollah in Lebanon, and Syria, all part of the Axis of Resistance against Israel and its allies, flooded Iran with words of their condolences (The Jakarta Post, 2024).
As the world’s largest oil producer, the death of the Iranian President will surely impact the world’s economy. Oil has one of the most significant impacts in economic fluctuation, thus countries all over the world have to anticipate the turbulence following this tragedy, Indonesia is not an exception. Afifa through Tempo (2024) reported that analysts are keeping an eye on the oil markets to see how they respond to additional unpredictability in the Middle East. The loss of the president alarmed the financial markets, particularly those for commodities, since Iran's standing in the world economy was becoming more precarious in the wake of the drone strike on Israel last month.
After Raisi’s death was confirmed, oil prices climbed. International benchmark Brent crude traded at $83.98 per barrel in the previous trading season, then rose to $83.98 per barrel. While at the same time, West Texas Intermediate (WTI) rose 0.29% from $79.58 per barrel to $79.81per barrel. These increases of oil prices happened within hours after the death of a dedicated right hand of Iran’s former supreme leader, Ayatollah Ruhollah Khomeini, announced. As fast as it spiked, WTI crude oil prices declined rapidly at $77.74 per barrel on May 21st and reached its lowest price at $76.30 per barrel on May 24th before it rose again to $78.92 per barrel on May 28th.
This fluctuation in oil prices as the impact of Iran’s loss did not last very long before it stabilized itself and was back to its normal price again. This is not the first time in history. Although oil price movements are complex and not always predictable during and after geopolitical events, generally the pattern is able to be traced. At first the oil price would rise before it fell as a response to the shock. This fluctuation however would not be sustained since the market would adapt to the new environment. Supply disruptions and market speculation are the main factors of oil price fluctuations.
As a country that produces and consumes a large amount of oil daily, Indonesia will have to face market’s uncertainty, as well as other countries. According to research (Ajnura & Juliansyah, 2021), it can be concluded that global oil prices have a favorable, albeit small, short-term impact on Indonesia's economic expansion. This is due to the fact that, in addition to being an oil-importing country, Indonesia also produces refined and crude oil for export, so the country will profit from the rise in global oil prices, which will inevitably result in an increase in the selling price of (ICP) Indonesian Crude Price (Ajnura & Juliansyah, 2021), so when global oil prices fluctuate, ICP will also be affected.
While over an extended period, the global oil prices have a positive and noteworthy impact on Indonesia's economic growth. This is because all countries, including Indonesia, depend heavily on oil, thus the people, businesses, and government will react swiftly to any increase in oil price. In order to improve state income, the administration has enacted a world oil import tax policy, meaning that an increase in world oil prices will also result in an increase in state revenues (Ajnura & Juliansyah, 2021).
Fluctuations in global oil prices could be tricky for some countries, especially for Indonesia whose economy depends heavily on oil. During global economic uncertainty, it is best for Indonesia to be prepared for what could have come in hand. Indonesia should have enough petroleum reserves and be able to find other alternatives for oil in case of a sudden rise in oil prices. The government should also be prepared with policies that could be implemented when the oil prices continue to spike. Those policies should be able to decrease oil imports and increase oil productivity with developments and innovations. These actions are necessary in order to keep the domestic economy stable during global economic shocks.
References
Afifa, L. (2024, May 22). Minister Sri Mulyani Monitors Indonesia’s Economy Post-Iranian President Death. Tempo. https://en.tempo.co/read/1870988/minister-sri-mulyani-monitors-indonesias-economy-post-iranian-president-death
Ajnura, U., & Juliansyah, H. (2021, April 1). THE EFFECT OF FLUCTUATION WORLD OIL PRICES AND THE RUPIAH EXCHANGE RATE ON ECONOMIC GROWTH IN INDONESIA. Ojs.unimal.ac.id. http://ojs.unimal.ac.id/index.php/Jompe
The Jakarta Post. (2024, May 20). Iran mourns president Raisi’s death in helicopter crash - Middle East and Africa. The Jakarta Post. https://www.thejakartapost.com/world/2024/05/20/iran-mourns-president-raisis-death-in-helicopter-crash.html
