Prolonged Conflict Risk. With Mojtaba Khamenei emerging as Iran’s new leader, regime continuity appears increasingly secured. His close links to the Islamic Revolutionary Guard Corps could make the current tensions more prolonged. Iran’s geography, often seen as a natural fortress due to the Zagros Mountains and other border ranges, also strengthens its defensive position. This could raise pressure on the US to deploy ground troops, a move that may hurt Trump’s approval ratings ahead of the midterm elections. As a result, the conflict could last longer and place greater strain on energy supply.

How Long Will It Last? The key market question is how long the conflict may last. Based on several data points, we believe current market movements are increasingly resembling the pattern seen during the Russia and Ukraine war in 2022. Within two months after the war began, the Dollar Index rose 7.9% to 104, while the IDR weakened 2.4% (c.350 points), while 10-y INDOGB rose 82 bps, broadly similar to current market moves, (more details in exhibit 2). Unlike other recent geopolitical episodes that faded relatively quickly, the 2022 Russia and Ukraine war lead to market stress lasted longer and had a clearer impact on both inflation and growth. In short, the risk of stagflation is now rising.

How High can it go? Strait of Hormuz holds key strategic importance, as it accounts for 30% of total seaborne oil or c. 15-20m bpd. The major disruption at this scale is unprecedented as historically, even 2–3 mn bpd shifts in global supply can trigger major market moves such as in 2008 and 2022. Nonetheless, the upside for oil price appears asymmetric, as oil price peaks tend to occur when prices reach levels that trigger demand destruction, and based on historical Brent oil price it often appears when prices exceed USD120/barrel. Without a coordinated global effort to curb consumption, oil prices could rise beyond that level.

The Supply Response. To close the gap of 15m bpd supply disruption from Strait of Hormuz, several measures have been announced, although in our view, the swift execution remains as key challenges: 1. The International Energy Agency (IEA) has agreed to release 400 mn barrels from strategic reserves, the largest coordinated release so far. However, the key issue is the daily drip rate, as the highest level seen historically was only 2 to 2.5 mn bpd. Even assuming that rate could be doubled, it would still cover only slightly more than a quarter of the disrupted supply. 2. The two pipelines: Saudi Arabia East-West Pipeline and Abu Dhabi Crude Oil Pipeline could both add c.4.3 mn bpd of supply from current supply. With both measures in place, the response would cover only around 60% of the disrupted supply.

The Russia Oil Supply. To ease supply pressure, the US on March 12 temporarily allowed purchases of Russian oil already stranded at sea as an effort to stabilize energy markets. Media reports estimated that around 124 mn barrels of Russian origin oil were stranded across 30 locations globally, equivalent to roughly five to six days of supply. If this measure were to become permanent, Russian oil could help narrow part of the gap, given its average oil production stands at around 9.3 mn bpd. Russia also exported about 6.6 mn bpd in February 2026 (4.2 mn bpd of crude and 2.4 mn bpd of oil products). However, such a move could also create fresh tensions within NATO, especially amid earlier frictions over Greenland.

Higher Gulf Risk Premium. The escalation of the US–Iran conflict risks embedding a structural geopolitical premium on Gulf assets, even if oil prices eventually normalize. Gulf economies have increasingly diversified toward tourism, aviation, logistics, and financial services which are highly sensitive to perceptions of regional stability. In March-26 alone, more than 23,000 flights were cancelled across the GCC, with roughly half of regional flights disrupted, effectively halting Ramadan tourism and potentially erasing USD40bn in tourism revenue, alongside a projected 23–38 million drop in visitors (USD34–56bn in lost spending). This shock is particularly significant for economies such as the UAE, where services account for roughly 52% of GDP.

AI Infrastructure. The conflict also raises questions about the resilience of the Gulf’s ambition to become a global hub for artificial intelligence and hyperscale data infrastructure. Major technology investments, including Amazon AWS’s USD5.3bn Saudi data center region and the Microsoft–G42 200 MW AI expansion in the UAE, depend on stable electricity supply, secure connectivity, and geopolitical neutrality. Disruptions to cloud services reported in the UAE and Bahrain during the escalation highlight its regions’ vulnerabilities in data centers, subsea cables, and energy infrastructure. As global tech firms reassess geopolitical risk, Southeast Asia region appears to offer the strongest advantage due to relatively less geopolitics conflict, stable regulatory frameworks, strong connectivity, and established data center ecosystems. Indonesia also has growing potential, supported by abundant land availability, large domestic demand, and expanding renewable power capacity, although improvements in grid reliability, digital infrastructure, and regulatory clarity will be key to capturing a larger share of hyperscale investments.

Energy Diversification Opportunities. Prolonged instability in the Gulf could accelerate global energy diversification, creating both opportunities and risks for Indonesia. Higher fossil fuel prices historically strengthen incentives for renewable fuels and alternative energy supply chains, potentially boosting demand for energy-transition minerals such as nickel. Prolonged geopolitical volatility could strengthen the strategic case for diversified energy sources, including biofuels, renewable diesel, and sustainable aviation fuel, potentially benefiting Indonesia in global energy transition supply chains.