I just saw a report from S&P about the impact of the Middle East conflict on sovereign credit ratings in Southeast Asia. Interestingly, Indonesia has become the most vulnerable country in this region.

The core logic is quite straightforward. If energy markets remain chaotic for a long time, countries with limited credit rating buffers are likely to be dragged down. S&P explicitly states that if the Middle East conflict persists, Indonesia’s sovereign rating will become particularly fragile.

Why Indonesia? The chain reaction here is worth noting. First is the rise in energy costs—Indonesia, as an oil-importing country, sees higher oil prices directly leading to a surge in import bills. This will squeeze the government budget because energy subsidies are a major part of Indonesia’s expenses, and higher prices increase the pressure.

Second is the trade aspect. Rising import oil prices will widen Indonesia’s current account deficit, which is a concern for an emerging market country. Additionally, inflation could accelerate, market interest rates will follow upward, and government financing costs will also rise.

In simple terms, Indonesia is now facing a domino effect of risks—energy shocks → fiscal pressure → exchange rate pressure → rising financing costs. No other country in Southeast Asia has such high vulnerability. That’s also why recent asset watchers are paying close attention to Indonesia’s assets and this risk factor.