The ongoing military tensions in the Middle East, particularly involving the United States, Israel, and Iran, are significantly impacting Indonesia’s economy, especially the price of cooking oil. The potential closure of the Strait of Hormuz, a critical route for global oil supply, has led to the most severe energy disruptions since the 1970s. As Indonesia is the world’s largest producer of crude palm oil (CPO), rising global crude oil prices, which are projected between $100 and $120 per barrel, are increasing CPO prices due to higher demand for palm-based biodiesel. However, this situation threatens domestic food prices and household purchasing power, as local cooking oil prices are heavily influenced by international markets. Additionally, logistics challenges and rising production costs complicate the outlook, with potential price increases for cooking oil placing further strain on low-income households.
Why It Matters
This situation highlights the interconnectedness of global markets and local economies, particularly in a country like Indonesia, where food and energy policies are increasingly at odds. Indonesia’s CPO production reached 51.66 million tons in 2025, but structural issues, such as aging plantations and insufficient replanting efforts, threaten future productivity. Furthermore, smallholder farmers face heightened financial pressure due to rising fertilizer costs driven by international conflicts. As food expenditures for the poorest households account for a significant portion of income, rising cooking oil prices could lead to severe economic hardship, underscoring the need for effective policy interventions to balance energy independence and food security.
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