The prolonged United States-Israeli war on Iran, coupled with the effective closure of the Strait of Hormuz, is beginning to ripple through global supply chains, particularly in oil and gas. The conflict is fueling cost-push inflation through rising prices of oil-derived products, especially plastics. Yet in Indonesia, the policy response remains limited, even as the economic impact becomes increasingly visible.

When the conflict escalated on Feb. 28, global crude oil prices surged. Brent crude climbed from around US$70 per barrel to a peak of $111 on March 20, driven in part by disruptions in the Strait of Hormuz, a critical artery for global energy trade. Although prices have since eased below $100, the downstream effects are only beginning to materialize.

One of the clearest transmission channels is plastics. Nearly 99 percent of global plastics are derived from fossil fuels, making them highly sensitive to oil price fluctuations. Two of the most widely used raw materials, polyethylene (PE) and polypropylene (PP), are heavily supplied by the Middle East, accounting for roughly a quarter of global production. As supply tightens and input costs rise, plastic prices have surged by up to 40 percent.

Plastics are deeply embedded across Indonesia’s consumer goods supply chain, particularly in packaging. As existing inventories deplete, producers are beginning to face significantly higher input costs, with few viable substitutes in the short term.

Indonesia’s vulnerability is compounded by its reliance on imported plastics, primarily from China, Thailand and South Korea. At the same time, major regional producers, including The Polyolefin Company, Rayong Olefins Company and Chandra Asri Pacific, have scaled back production in response to rising costs and supply constraints.

For businesses, especially micro, small and medium enterprises (MSMEs), this creates a difficult trade-off. Some firms have begun to pass on higher costs to consumers, but many lack pricing power due to weak demand and competitive pressures, forcing them to absorb the shock through shrinking profit margins.

The impact is already spilling over into households. Cooking oil prices, particularly for premium brands, have risen by 2.03 percent within a month, while increases in subsidized cooking oil Minyakita remain more contained at 0.48 percent. This reflects not only higher crude palm oil (CPO) prices but also rising packaging costs, highlighting the cascading effect of plastic price inflation.

Rice prices tell a similar story. By mid-April, both medium and premium rice prices had exceeded government price ceilings, reaching Rp 14,287 (83 US cents) per kilogram and Rp 16,047 per kg, respectively. A key driver is the sharp increase in packaging costs. For example, the price of a 5-kg plastic bag has nearly doubled, from Rp 2,560 to Rp 5,020 per unit.

This underscores a broader issue: Plastics are no longer just an industrial input but a significant cost driver for essential goods. While the government has taken steps to stabilize food prices, such as maintaining domestic supply obligations for cooking oil and expanding rice distribution programs, these measures remain reactive and narrowly focused. The Food Supply and Price Stabilization (SPHP) program may help contain rice prices in the short term, but it does not address the underlying cost pressures stemming from plastics.

This points to a deeper policy gap. Current interventions have yet to fully recognize the “chicken-and-egg” dynamic between rising upstream input costs and downstream consumer prices. Without addressing the root causes in oil-derived materials, efforts to stabilize food prices risk becoming increasingly costly and less effective over time.

Short-term measures could provide some relief. For instance, reducing import duties on plastic raw materials could help buffer industries against global price shocks. However, such fixes alone are insufficient. In the longer term, Indonesia must confront its structural dependence on fossil fuel-based plastics.

Efforts to reduce plastic usage have so far yielded limited results. Despite the introduction of plastic bag charges in 2016, plastic waste has continued to rise, accounting for 19.74 percent of total waste in 2025, up from 17 percent in 2021.

This trend underscores the need for a more comprehensive strategy. Expanding the use of recycled plastics, improving waste management systems and creating price incentives for sustainable materials could help reduce both environmental impact and economic vulnerability to global oil shocks.