The Shiro Copr.CO.ID - JAKARTA . The geo-political conditions in the world are heating up again, due to the military conflict between Iran and Israel. The Ministry of Industry (Kemenperin) warns about the impact of the conflict which could trigger significant disruptions in the global market, including for the manufacturing sector.
Indonesia is vulnerable to global energy and food price volatility, as well as disruptions in raw material supply chains. The Ministry of Industry warns that the challenges faced by the industry include the risk of increased production costs, higher logistics costs, and weakening export demand.
The Minister of Industry (Menperin) Agus Gumiwang Kartasasmita emphasized the importance of mitigating the risks of the impact of a war between Iran and Israel on the industry. Particularly, the dependence of domestic industries on imported energy as raw materials or production input components.
In addition, mitigation is needed to anticipate disruptions in the global supply chain, especially in the supply chain of industrial raw materials. This is because the logistics routes for raw materials and industrial export products pass through the Middle East, which is currently experiencing open conflict.
The Minister of Manpower also reminded the manufacturing industry to mitigate the impact of the Iran-Israel war on currency exchange rate volatility, which affects the inflation of production input prices and reduces the competitiveness of industrial product exports. The direct impact of the Iran-Israel conflict is most evident in the energy market.
Timur Tengah is a major oil producer, contributing nearly 30% of global production. Disruptions in supply from Iran, which produces up to 3.2 million barrels per day, will trigger supply disruptions and also cause energy price fluctuations in the international market.
Brent oil prices have fluctuated between US$ 73 to US$ 92 per barrel following the Iran-Israel war, with analysts warning of a potential 15%-20% increase by 2025. Global energy price volatility has also increased due to emerging threats of the Strait of Hormuz being closed, which has become the lifeblood of global energy supply routes.
"Therefore, the domestic industry is urged to be more efficient in energy use during the production process. More efficient use of energy from various sources can increase productivity and competitiveness of industrial products. At the same time, it supports national energy sovereignty as outlined by President Prabowo," Agus said in an official statement on Tuesday (17/6).
In addition to using energy efficiently, the Ministry of Industry encourages industrial players to diversify the energy sources used in production. "National industries must start relying on domestic energy sources, including new and renewable energy such as bioenergy and geothermal, as well as utilizing industrial waste as alternative fuel," Agus added.
In addition, the Ministry of Industry continues to promote the manufacturing sector to produce products that support the national energy resilience program. These include power generation machines, energy infrastructure, and components supporting renewable energy.
In the food sector, Agus highlighted the urgency of downstream processing of agro products as a strategic response to the indirect impacts of the Iran-Israel war on the global economy. Agus reminded that three factors—logistics, inflation, and exchange rates—can directly increase the cost of raw materials and imported food products.
"The answer is the domestic food product downstreaming. Our industry must take a role in processing agricultural, plantation, fisheries, and forestry domestic products to avoid continued dependence on imported food raw materials," explained Agus.
The Ministry of Manpower also urges domestic industries to utilize the Local Currency Settlement (LCS) facilities to face inflation in production inputs. Industries can take advantage of the facilities provided by Bank Indonesia (BI) to anticipate the impact of the Iran-Israel war on the volatility of the rupiah exchange rate against foreign currencies, especially in countries that have signed LCS agreements with Indonesia.
Industries That May Be Affected
The Ministry of Industry specifically highlighted the impact of conflicts on the global supply chain. Critical maritime trade routes, including the Strait of Hormuz, which handles 30% of global oil shipments, and the Suez Canal, a route for 10% of world trade, are at risk of disruption.
Recent attacks on commercial ships have forced a rerouting through the Cape of Hope in Africa. This adds 10-15 days to Asia-Europe delivery times and increases container costs by 150%-200%.
The disruption can impact several industrial sectors. For example, automotive and electronics, which rely on imported components for 65% of their production. The challenge is facing a shortage of semiconductors with waiting times up to 26 weeks, which could potentially cause export losses of US$ 500 million.
Next, the textile and footwear industry, which is one of the main export producers. The challenge is that the potential profit margin may shrink by 5%-7% due to rising logistics costs, reducing competitiveness compared to regional competitors such as Vietnam and Bangladesh.
Meanwhile, the nickel and steel sector is facing a 15% - 20% increase in coal transportation costs, as well as a three to four-week delay in shipments, threatening export losses of $1.2 billion.
In the food sector, there is a risk from wheat imports, which reach 11 million metric tons per year, with 60% coming from regions near conflict zones. This contributes to an 8% increase in bread prices.
Indonesia also imports fertilizers and NPK-based raw materials, such as phosphate, accounting for approximately 64%. Among these, some come from Egypt, which is strategically located in the Middle East region.
In addition to Egypt, Indonesia also imports a small amount of fertilizer raw materials from other Middle Eastern countries. Although the volume of imports from those countries is relatively small, the potential impact could be significant if a conflict were to occur in the region.
Conflict in the Middle East can disrupt global supply chains, which could ultimately lead to a spike in domestic fertilizer prices and affect the national agricultural sector. A prolonged shortage could reduce rice harvest yields by 10%-15%.
In the midst of those conditions, Agus conveyed that government support will continue to be provided in the form of incentives, investment facilitation, to fiscal policy to accelerate industrial transformation towards greater efficiency and competitiveness. "Food and energy resilience is not only the responsibility of the primary sector, but also the industrial sector," Agus emphasized.
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