Strait of Hormuz Reopening and the Rupiah: Testing the Recovery's Foundation

Rupiah Stability Watch · 2026-07-17

The premise

On 15 June, the US and Iran signed a framework agreement to end hostilities and reopen the Strait of Hormuz. Within days, the UN began evacuating 11,000 stranded sailors and commercial traffic resumed. Our prior analysis documented how the collapse in oil prices from $93 to the low $80s gave Indonesia fiscal breathing room and drove a 1.8% rupiah rebound to 17,729. Now, with the Strait reopening and the dust settling, the question is whether that recovery has held. Our assessment: the stabilization is real but thinner than the headline numbers suggest. As of 3 July, JISDOR places the rupiah at approximately 17,960 per US dollar, Brent crude sits below $74, and Indonesia faces a more stable but still fragile macro environment.

What the evidence supports

1. The oil-rupiah channel is holding, but only just

Brent crude has stabilized in the $71–$74 range, well below the $85 average that drove Indonesia's subsidy costs sharply higher in early 2026. This is not the dramatic continued drop some might have hoped for, but it is a material improvement from the $120 peak when Indonesia's finance ministry warned of a potential budget deficit widening to 2.9% of GDP.

Futures markets are signaling cautious optimism. Near-month contracts remain anchored below $75, and the forward curve shows limited upside pressure through late 2026. This is consistent with the market pricing in a gradual normalization of Gulf supply rather than an immediate return to pre-conflict volumes.

For Indonesia, which imported approximately 400,000 barrels per day of crude in 2025, every sustained $10 per barrel drop in the import price translates to roughly $1.46 billion in annual import savings. At current levels versus the earlier peak, Indonesia is looking at meaningful fiscal relief. How that relief is deployed will determine whether it translates into broader economic stability.

2. The Strait's reopening has tangible but incomplete effects on shipping and trade

The UN's Maritime Evacuation Operation, involving over 11,000 sailors, represents the most visible signal of normalization. Commercial traffic has resumed, and tanker throughput through Hormuz has recovered from near-zero during the conflict's peak.

However, war-risk insurance premiums for Persian Gulf transits remain elevated — running as much as 30 times above pre-conflict levels. Industry sources indicate these will not immediately return to normal because insurers require sustained calm before adjusting rates, and the implementation of the US-Iran deal remains in a 60-day interim period. The Joint Hull Committee re-classification of the Strait during the conflict created a premium structure that unwinds slowly.

Transiting vessels also face uncertainty over Iranian maritime service fees. Tehran has repeatedly stated its intent to charge such fees, opposed by the US. A fee-free period covers the interim 60 days, but what follows is unclear. The practical result: while the Strait is physically open, the cost of moving goods through it remains elevated and will likely stay so for months.

3. The rupiah rally has partially held but is under fresh pressure

In mid-June, the rupiah rebounded from near 18,050 to around 17,729 — a gain of roughly 1.8%. That rally, driven by the oil collapse and BI's emergency rate hike, has since given back some ground. JISDOR as of 3 July sits at approximately 17,960.

This is not a collapse. The currency is holding well above the mid-June lows, and the direction has clearly shifted from the relentless depreciation that characterized the first half of 2026. But the fact that it has weakened from 17,729 to 17,960 suggests the recovery was built on fragile consensus rather than deep conviction.

Bank Indonesia's foreign exchange reserves stood at $144.9 billion as of May 2026, down from a peak of $157 billion in March 2025. Covering 5.6 months of imports, this remains above the international adequacy standard of three months, but the declining trend is notable. BI has been intervening actively in both spot and non-deliverable forward markets, and the central bank raised the BI-Rate by 25 basis points to 5.75% on 17–18 June. The rate hike signaled seriousness but also acknowledged that stabilization has a price in terms of domestic credit conditions.

4. The fiscal picture is improving, but subsidy bills remain substantial

Indonesia's 2026 energy subsidy allocation is budgeted at Rp 183.9 trillion, based on oil price assumptions that now look conservative. With Brent holding below $75, the actual subsidy burden should come in below budget, freeing fiscal space. Finance Minister Sri Mulyani Indrawati has positioned the State Budget as a shock absorber, and lower oil prices give the government options: maintain current subsidy levels and bank the savings, or redirect funds to infrastructure, social programs, or debt reduction.

The risk is that lower oil prices could tempt the government to keep subsidized fuel prices unchanged and absorb the windfall rather than passing it through to consumers. While politically popular, this perpetuates the subsidy dependency that makes Indonesia's fiscal position vulnerable to the next oil shock. It also consumes resources that could otherwise fund transition programs, infrastructure, or education.

What the evidence does not support

1. A clean return to pre-conflict stability

Some narratives suggest that with the Strait open and oil prices down, Indonesia's currency challenges are largely resolved. This overstates the case. The rupiah at 17,960 remains historically weak — in early 2025, it traded closer to 15,800. The depreciation that has already occurred represents a structural adjustment driven by Indonesia's external position, not a temporary blip. The Hormuz reopening and oil price drop arrested further deterioration; they did not reverse the underlying trend.

2. Immediate relief on import prices beyond oil

While oil prices have fallen, war-risk premiums on shipping remain elevated. For a country that imports not just crude but also manufactured goods, electronics components, and agricultural inputs, total import costs are coming down more slowly than the headline oil price would suggest. Container shipping lines have already factored in sustained risk premiums, and contract renegotiations typically lag spot-market improvements by one to two quarters. Indonesian importers should not expect a proportional passthrough from oil prices to total import bills just yet.

The least-harm path

The most constructive course for Indonesia involves three elements:

First, maintain BI's active FX intervention posture without overcommitting reserves. The $144.9 billion reserve position is adequate but not inexhaustible. Selective intervention — defending against disorderly moves rather than targeting a specific level — preserves firepower while signaling commitment.

Second, use the fiscal space from lower oil prices to diversify away from energy subsidies rather than entrenching them further. Indonesia's subsidy bill is a structural vulnerability that exposes the budget — and the rupiah — to every oil price cycle. Redirecting a portion of the savings toward targeted social assistance and infrastructure creates more durable stabilization.

Third, monitor the USD 300 billion Iranian reconstruction fund and the 60-day interim period closely. If the peace framework frays, oil could spike back above $90, and Indonesia would face renewed pressure with depleted reserves and less policy room than before. Maintaining some dry powder, both fiscal and monetary, is prudent insurance against that scenario.

What I'm uncertain about

The durability of the US-Iran framework remains the biggest question. The interim 60-day period creates a window where the deal could still unravel, particularly if Iran insists on maritime service fees and the US responds with enforcement pressure. An attack on the Singapore-flagged vessel "Ever Lovely" in late June, which temporarily halted the UN evacuation, shows that non-framework actors remain active. A second such incident could quickly reverse the oil price and rupiah trajectories.

El Niño risk is the second major uncertainty. Indonesia's 2026 crude palm oil output is already projected to fall by 1–2 million tons due to drought conditions and high fertilizer costs. With palm oil accounting for a significant share of export earnings, any further agricultural disruption would pressure the trade balance and, by extension, the rupiah. The El Niño impact on Indonesian production is expected to run through 2027, meaning this is not a transient risk.

Finally, the path of global monetary policy is unclear. The Federal Reserve's stance will influence capital flows to emerging markets, including Indonesia. If US rates remain higher for longer, Indonesia's interest rate advantage will compress, reducing one of the supports for the rupiah that BI has cultivated.

Summary

The Strait of Hormuz reopening and the associated oil price relief have provided Indonesia with a genuine reprieve. The rupiah has stabilized, the fiscal outlook has brightened, and the most acute geopolitical risk has eased. But the recovery remains shallow: the currency is still near historic weakness, foreign reserves have declined, and multiple risks — from Hormuz toll disputes to El Niño to global monetary tightening — could test the newfound stability. The trend reversal that emerged in mid-June has held, but its foundation is narrower than the headline numbers imply.