The Impact of World Oil Prices, Inflation, and Exchange Rates on Energy Subsidies in Indonesia

Abstract

This study aims to analyze the effect of world oil prices, inflation, and exchange rates on energy
subsidies in Indonesia during 2016–2025. This study employs a quantitative approach using
secondary annual data and multiple linear regression analysis. The dependent variable is energy
subsidies, while the independent variables consist of Brent world oil prices, inflation, and the
rupiah exchange rate against the US dollar. The results show that world oil prices have a positive
and significant effect on energy subsidies, with a coefficient of 1.667 and a significant value of
0.014. In contrast, the exchange rate has a positive but statistically insignificant effect, with a
significance value of 0.073, while inflation has a negative and insignificant effect, with a
significance value of 0.252. Simultaneously, world oil prices, exchange rates, and inflation have
a significant effect on energy subsidies, as indicated by an F-statistic of 14.524 and a significant
value of 0.004. The R² value of 0.879 indicates that 87.9% of the variation in energy subsidies
can be explained by the variables included in the model. These findings indicate that global oil
price fluctuations are the most important factor influencing Indonesia's energy subsidy burden.
Therefore, adaptive and targeted subsidy policies are needed to mitigate the fiscal risks arising
from global energy price volatility while maintaining protection for vulnerable households.