Global oil prices continued their upward trend on Wednesday, June 18, 2025, driven by growing fears that the escalating conflict between Iran and Israel could disrupt vital energy supply chains, particularly in the Middle East.

Benchmark Brent crude futures rose 19 cents, or 0.25 percent to US$76.64 per barrel as of 00:29 GMT. Meanwhile, U.S. West Texas Intermediate (WTI) crude gained 23 cents, or 0.31 percent reaching US$75.07 per barrel.

The modest increase followed a sharper 4 percent jump in the previous trading session, as markets reacted to potential threats to oil transportation in the region. The U.S. has begun deploying additional fighter jets to the Middle East in response to the growing tensions, Reuters reported, quoting three unnamed officials.

Concerns are mounting over the strategic Strait of Hormuz, a maritime chokepoint through which roughly one-fifth of the world’s seaborne oil passes. On Tuesday, June 17, 2025, two oil tankers reportedly collided and caught fire near the strait, further exacerbating supply fears. The UK’s Maritime Trade Operations also warned on Monday of electronic disruptions affecting vessel navigation systems in the area.

Local implications

The conflict has reignited vulnerabilities in the global oil market, posing serious challenges for oil-importing countries like Indonesia. As global crude prices surge, the economic consequences could ripple across the country’s subsidy-heavy energy sector.

“Every time there is geopolitical tension involving major energy-producing countries like Iran, markets react swiftly. Even the perception of supply disruption is enough to push prices up,” Mohammad Faisal, Executive Director of the Center of Reform on Economics (CORE),spoke to Indonesia Business Post on Tuesday, June 17, 2025.

Brent crude, which hovered around US$60 per barrel just a week ago, has since climbed to US$73–74. Faisal projected that prices could hit US$80 if the conflict stabilizes. However, a worst-case scenario such as the closure of the Strait of Hormuz could see crude oil surge beyond US$100 per barrel.

Historically, Iran has repeatedly threatened to shut down the Strait of Hormuz during diplomatic standoffs, but Faisal said the likelihood of a complete closure remains low.

“Closing Hormuz would damage Iran’s own economy and trigger a swift response from U.S. naval forces in the Persian Gulf. These threats have never materialized into actual blockades,” he noted.

The recent price spike could strain state budget (APBN) particularly in subsidizing fuels like Pertalite and Solar. As a net oil importer, the country is exposed to external shocks that could inflate subsidy costs and widen the fiscal deficit.

Finance Minister Sri Mulyani Indrawati has warned that mounting geopolitical instability compounded by aggressive global trade policies and ballooning deficits in major economies could exacerbate inflation while stifling growth.

Indonesia’s 2025 state budget assumes a manageable oil price. But if Brent exceeds US$100, the government may have to either hike fuel prices or increase the deficit to sustain subsidies, Faisal warned.

“For now, the government can maintain price stability as long as crude stays under the US$80 threshold,” Faisal said. “Non-subsidized fuel prices are already reflecting global volatility, but subsidies remain intact.”

Preparing for the worst

To navigate this period of uncertainty, Faisal urged the government to develop contingency plans. These include reallocating energy subsidies, boosting revenue collection, and streamlining spending.

“Fiscal resilience will be critical. The government must revise macroeconomic assumptions and prepare for adverse scenarios,” he said.

Iran, the third-largest producer within OPEC, pumps around 3.3 million barrels of crude per day. Analysts suggest other OPEC members could tap into their spare capacity to offset potential Iranian supply losses.

Nevertheless, markets remain jittery, and Indonesia’s economic planners will be closely watching developments in the Gulf as the conflict stretches into its sixth day.