The US-Iran Conflict: Why it matters for Indonesia


IO – The US-Iran conflict could cost Indonesia in various ways, first and foremost on the economics front.  It could also have an impact on Indonesia’s political dynamics, perhaps even on our national security. 

  Much, of course, will depend on whether or not the conflict continues to escalate and, if it ends up turning into a fully-fledged war.  Since Iran has taken a relatively measured and proportionate ‘revenge’ attack on the US military in Iraq and has said it is not looking for war, there is a possibility the Trump administration will refrain from a counter-attack in the hopes of ending the crisis.  

   Yet there is still a chance that both Washington and Tehran will turn up the heat.  According to a source inside the Iranian Revolutionary Guard Corps, the missile attack on Al-Assad left 80 American soldiers dead and 200 wounded.  Such numbers might leave Trump with no other option than to retaliate.

  Trump, impeached and now facing trial in the Senate, might consider the conflict as a useful distraction.  He could calculate that presidents before him discovered that in times of war, citizenry tend to rally in favor of the president.

  Similarly, Tehran has found the conflict to serve their domestic political needs.  Prior to the assassination of General Soleimani, Iranians were out in the streets across the country protesting against their government about fuel price increases and a weak economy.  Reeling from U.S. sanctions, Iran’s leaders have had few means to improve the economic situation.  Now, Iranians are enraged with the US instead.  Iran’s mullahs, like Trump, could decide that a little war is perhaps their best means of staying in power.

  If both sides drift towards a war, it would surely have ripple effects on the global economy.   Oil and gas prices would spike, investors would reduce their equity holdings and exposure in emerging markets.  For Indonesia, this would mean a depreciation of the rupiah, higher inflation rates and ultimately a weaker economy.

  As during the Gulf wars, a prolonged US-Iran imbroglio could easily inflame anti-American sentiments in Indonesia.  Islamist groups and political parties would be tempted to play the religious card, not because they are necessarily sympathetic with Shiite Iran, but more because of the fact that they would be looking to boost their infuence on the national political stage.

  In this scenario of yet another conflict in the Middle East, it is obvious Indonesia, like other emerging economies, would come out on the losing end.  

   One of the winners, however, may come as a surprise–namely, China.  This is because Beijing, as it learned during the Bush and Obama presidencies, benefits from the US getting tied down in wars in the Middie East.  Many American diplomats admit that the US preoccupation with the Middle East drew its attention away from Asia, leaving a vacuum for China to fill and therefore significantly increase its influence in the region.  It may happen again, leaving China’s neighbors, including Indonesia, thinking that the prospect for America to maintain its status as a Pacific power is poorer than ever.