The oil war is not denting Indonesia's growth. It is denting the budget.

Seven months after the United States attacked Iran on 28 February and the Strait of Hormuz was disrupted, the striking thing is how little the region's growth has suffered. The Asian Development Bank actually raised its forecast: developing Southeast Asia is now expected to grow 4.7 per cent in 2026, up from the 4.4 per cent it predicted last December. Jayant Menon of Singapore's ISEAS institute reads that number carefully in a commentary for Fulcrum. The export boom in AI-related goods, he writes, has more than covered the damage from the war and from El Nino. His verdict is that the war is "less of a growth shock than a welfare shock", which means the national total keeps rising while poorer households carry the price increases.

The mechanism runs through fuel. Southeast Asia buys more than half its crude oil from the Gulf, so a blocked shipping route lands directly on the pump price. Indonesia and Malaysia answered by holding their price caps, which Menon says raised the subsidy cost to public money significantly. A cap does not make fuel cheaper to produce; it moves the difference onto the state. Thailand and Vietnam let prices rise a little and cut fuel taxes instead, which he calls poorly targeted too, because the help goes to everyone who buys fuel. The Philippines aimed its support at low-income transport, farm and fishery workers, but the amounts were small, and three interest rate rises still did not stop the peso hitting record lows.

Then comes the bill. Menon puts Indonesia on his short list of countries at risk of sovereign debt distress, the point where a government struggles to pay what it owes, alongside the Philippines and the region's poorest states. What that costs is the next emergency, because a state already stretched has less room to answer a shock like El Nino.

Why it matters

The calm at the petrol pump is real, and it is being paid for somewhere you cannot see, in borrowing that narrows what the budget can do next year. If you depend on anything the state funds, from a clinic to a school meal to a road repair, that is where the squeeze shows up first. Watch two things: whether the government starts trimming the cap as oil stays high, and what it cuts instead if it does not.