Indonesian Minister Urges State-Owned Enterprises to Brace for Global Turmoil

Indonesian SOE Minister urges state firms to prepare for potential global turmoil due to Middle East tensions, highlighting risks to oil prices and currency markets that could impact the country's economy.

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Indonesian Minister Urges State-Owned Enterprises to Brace for Global Turmoil

Indonesian Minister Urges State-Owned Enterprises to Brace for Global Turmoil

On April 20, 2024, Indonesian State-Owned Enterprises (SOE) Minister Erick Thohir called on SOE directors to prepare for potential global turmoil, particularly the impact of the escalating conflict between Iran and Israel in the Middle East on crude oil prices and the strengthening of the US dollar. Thohir emphasized the need for SOEs to be ready for possible disruptions and volatility in global markets due to the geopolitical tensions and currency fluctuations.

The minister stressed that each SOE must develop a customized strategy to maneuver through the world's upheaval while still achieving the dividend target of IDR 85.8 trillion for 2024. "If they do not heed the warning from March-April, they may become complacent due to their good performance, which could lead to not achieving the dividend target next year," Thohir cautioned.

Thohir immediately contacted SOE presidents and sent messages to warn them about the situation and advise caution in their corporate actions. He highlighted that a major conflict between Israel and Iran could drive oil prices up to $100 or $150 per barrel, which would have significant implications for Indonesia and the rest of the world.

Why this matters: The potential escalation of the Middle East conflict and its impact on global oil prices and currency markets could have far-reaching consequences for Indonesia's economy and the performance of its state-owned enterprises. Minister Thohir's proactive approach in urging SOEs to prepare for potential turmoil underscores the importance of resilience and adaptability in the face of global uncertainties.

In light of the geopolitical tensions, Thohir asked PT Pupuk Indonesia (Persero) to secure the supply chain of raw materials for fertilizers, such as potash and phosphate. He emphasized the importance of finding investors for the fertilizer raw material industry to ensure the availability of fertilizers in the country, which is crucial for food security. Thohir also encouraged Pupuk Indonesia to complete the development of a fertilizer production facility in Eastern Indonesia to supply 70-80% of the national fertilizer needs by 2028.

The minister's call for preparedness comes as geopolitical risk creeps back into the crude oil market, with prices seeing significant intraday swings and traders piling into the options market to protect against a potential spike in oil prices. While the initial market reaction suggests the tensions may not lead to a conflict that disrupts global oil supplies, the risks to crude oil are beginning to grab global attention, with the potential for a severe oil shock if the situation escalates further.

Key Takeaways

  • Indonesian SOE minister urges preparedness for global turmoil, oil price risks.
  • Potential Iran-Israel conflict could drive oil prices to $100-$150/barrel.
  • Minister asks SOEs to develop strategies to meet 2024 dividend target of IDR 85.8T.
  • Fertilizer supply chain security and new production facility emphasized for food security.
  • Geopolitical risks in crude oil market raise concerns of potential severe oil shock.