The escalating tensions between India vs Pakistan carry potential economic repercussions for Indonesia, primarily through trade disruptions and impacts on the global supply chain. While Indonesia maintains positive trade balances with both South Asian nations, a prolonged conflict could indirectly affect its economy.
Indonesia’s trade with India in 2024 saw a surplus of US$14.67 billion, with key exports including coal, palm oil, and steel. Trade with Pakistan also resulted in a US$2.9 billion surplus for Indonesia, with palm oil and textiles being significant exports. Any disruption to transportation routes or a decrease in demand from these nations due to instability would impact Indonesian exports and potentially lower commodity prices, particularly for crude palm oil.
Furthermore, the India vs Pakistan conflict could exacerbate existing global supply chain vulnerabilities. As India emerges as a significant player in the global supply network, disruptions in the region could lead to increased shipping costs and delays. While some companies might seek alternative routes through Southeast Asia, potentially benefiting Indonesia’s logistics sector, overall uncertainty and reduced business confidence in the South Asian region could have a dampening effect on global trade.
Indonesia has urged both India and Pakistan to exercise restraint and prioritize dialogue. As a significant player in ASEAN and with growing economic ties across Asia, Indonesia has a vested interest in regional stability. While the direct economic impact might be limited in the short term, prolonged tensions could lead to broader instability affecting trade flows and investment within the wider Asian economic landscape. Therefore, Indonesia will be closely monitoring the situation and hoping for a swift de-escalation.
The conflict could also impact investor sentiment towards the broader Southeast Asian region, potentially leading to a cautious approach to investments, including in Indonesia. Furthermore, any significant rise in global oil prices due to geopolitical instability could also affect Indonesia’s economy through increased energy costs, despite being an oil producer, as it still relies on imports to meet domestic demand.