The escalating military confrontation in the Middle East, pitting the United States and Israel against Iran, has become a transmission belt, channeling external shocks directly into Indonesia’s domestic economy. Nowhere is this more evident than in the price of cooking oil, one of the country’s most politically sensitive commodities. The potential closure of the Strait of Hormuz, through which roughly one-fifth of global oil supply flows, has created the most severe energy disruption since the 1970s.

For Indonesia, the world’s largest producer of crude palm oil (CPO), this crisis exposes a striking paradox. Rising global crude prices, projected to hover between $100 and $120 per barrel, are lifting CPO prices through substitution effects in biodiesel markets. As fossil fuel costs surge, demand for palm-based biofuel intensifies. Yet this windfall at the export level simultaneously translates into mounting pressure on domestic food prices and household purchasing power.

Beneath headline production figures lies a more fragile reality. Indonesia’s CPO output reached 51.66 million tons in 2025, but this growth masks structural stagnation. Replanting programs have fallen short of targets, leaving an aging plantation base and declining yields per hectare. The sector’s long-term productivity remains under strain, even as global demand rises.

Fragile Supply Chains and Rising Input Costs

These vulnerabilities are compounded by Indonesia’s heavy reliance on imported agricultural inputs, particularly fertilizers.

The Middle East conflict has driven global fertilizer prices sharply higher, placing smallholder farmers under acute financial pressure.

The Middle East conflict has driven global fertilizer prices sharply higher, placing smallholder farmers under acute financial pressure.

Production costs are rising, while farmgate prices for fresh fruit bunches risk falling if export........

© Middle East Monitor