Prolonged wars: the “New New Normal”
As the US-Israel aggression on Iran enters its sixth week, with no credible off-ramp in sight, global markets face a triple shock: (1) an energy crisis driven by the effective closure of the Strait of Hormuz, (2) monetary policy paralysis at the Federal Reserve, trapped between risks of inflation and / or recession and an accelerating geopolitical realignment reshaping the global economic order, clearly in favor of Russia and China. For Indonesia, the implications are severe — a widening fiscal deficit, persistent foreign capital outflows and a Rupiah under sustained pressure. Applying Herman Kahn’s classic escalation ladder framework to the current conflict, we assess the Iran-US conflict as having progressed to Stage 5 of 7 — “Attrition War.” The conflict has in fact moved well beyond coercive diplomacy (Stage 1–2), past limited strikes (Stage 3), through a full air campaign (Stage 4), and into a sustained attrition phase, one where both sides are absorbing significant costs, while seeking to impose unsustainable losses on the other.

The “Hormuz Premium”
Brent crude has surged approximately 74% year-to-date, from around US$62.80/bbl to approximately US$109/bbl, as of 4 April. The Strait of Hormuz remains effectively closed. Iran has floated the concept of imposing a toll fee on transit through Hormuz, as a condition of reopening. We thus model any of three scenarios: a base case Brent US$95–105/bbl in Q2 (45% probability), a bear case US$120–150/bbl under prolonged closure (30), and a bull case US$75 85/bbl, assuming prompt resolution (25%). With the April 6 deadline expired and Iran rejecting Trump’s numerous ultimatums, the bear case probability has advanced, since our last report. Russia stands to gain US$45–151 billion in additional budget revenues in 2026 from elevated energy prices. In a central three-month war scenario, Russia’s windfall will reach approximately US$161 billion in additional export revenues. This could allow Russia to run a budget surplus and sustain elevated war spending in Ukraine for years to come. China’s positioning is equally strategic: Beijing has publicly condemned the strikes, while quietly deepening cooperation with both Iran and Russia.

Downgraded global market growth
The OECD’s March 2026 interim report downgraded global GDP growth for 2026 to 2.9%, erasing earlier upward revisions that had been building before the conflict. The damage is unevenly distributed: Russia is a clear beneficiary, with growth potentially doubling from pre war estimates on the back of an energy windfall. China’s growth was revised downward only marginally, to 4.4%, as its strategic oil reserves and diversified energy sourcing provide a buffer, while against this domestic demand weakness and the horrendous property crisis remain structural drags. The increasingly-desperate Euro Area faces the steepest downgrade, to 0.8%, as steeper energy prices weigh heavily on such manufacturing dependent economies as that of Germany. ASEAN-5 growth was cut to approximately 4.0%.

The Indonesian equity market is frankly not doing very well
The JCI closed at 7,027 on 2 April 2026, down ~3.5% YTD. The index had dipped as low as 6,800 by mid-March, trading at approximately 12–13x trailing P/E, below its 5-year average of 15–16x. Forward P/E on consensus 2026 earnings is approximately 11–12x. March alone saw a decline of approximately 13.7%. Nervous foreign investors have consistently been net sellers throughout 2026. Through Q3 2025, foreign portfolio investment recorded a net outflow of approximately US$14 billion. Foreign bond holdings have fallen to just 13% of outstanding issuance, their lowest level since January 2007. The Indonesia 10-year yield stood at 6.62% as of 2 April.

Strategy - The Quagmire Deepens

Strategy - The Quagmire Deepens

Andre Benas

Strategy

08 April 2026 - 07.42am

Strategy - The Quagmire Deepens

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