ASEAN Beat | Economy | Southeast Asia
But Jakarta is likely to weigh carefully the domestic political benefits of cheap oil against possible international blowback.
The headquarters of the Indonesian state oil and gas company Pertamina in Jakarta, Indonesia.
Credit: Flickr/Ya, saya inBaliTimur
Indonesia remains open to buying cheap oil “from anywhere,” including Russia, in order to keep the price of domestic fuel under control, the country’s energy minister said on Friday.
According to a report by Reuters, Minister Arifin Tasrif told reporters that the government had not yet purchased Russian oil – he claimed it was not yet available to Indonesia – but that it was open to buying cheap oil from any country. “We have not bought it yet because the goods are not available,” he said. He added, “If there is cheap oil from anywhere, of course we will buy.”
Arifin’s comments came two weeks after President Joko “Jokowi” Widodo said that his administration was still considering the possible benefits of purchasing cheap oil from Russia.
“We always monitor all of the options,” the Indonesian leader told the Financial Times, when asked whether Indonesia would deal with Moscow over oil. “If there is the country (and) they give a better price, of course.”
At the start of September, Jokowi’s government cut fuel subsidies in order to reduce the pressure on the national budget. This caused the prices of subsidized petrol and diesel to jump from 51 cents to 67 cents per liter and diesel from 35 cents to 46 cents – the first such increase since 2014.
The price and fuel and other basic goods is a subject of great political sensitivity in Indonesia, and the government has long reserved the right to intervene in the workings of the market in order to ensure that prices for essential staples remain low. In the past year, it has intervened in the coal and palm oil markets in order to prevent rises in the price of electricity and cooking oil, respectively. It also has a standing decades-old system of fuel subsidies that ensures a flow of low-cost diesel and petrol for the Indonesian public.
In announcing the subsidy reductions earlier this month, Jokowi described the move as “the government’s last option” after the state budget allocation for fuel subsidies blew out from $10.2 billion to $33.8 billion, as a result of rising global oil prices, a side effect of President Vladimir Putin’s invasion of Ukraine, and the concurrent weakening of the Indonesian rupiah. The jump in fuel prices immediately sparked small protests across the country, led by labor unions and student groups.
In this context, cheap Russian oil – cheap by virtue of the fact of Russia’s growing international isolation – has an undeniable attraction for domestic political reasons. Back in March, the Indonesian state energy firm PT Pertamina said it was considering purchasing crude oil from Russia to offset the rising global oil prices.
The fact that Indonesia has yet to move in this direction, however, suggests that it is being cautious, and factoring in the likely impact of a Russian oil deal on its relations with Western nations like the United States. At the start of the month, the G-7 group of countries agreed to impose a price cap on Russian oil in order to hobble Moscow’s ability to finance its war in Ukraine. Any move to purchase Russian crude at prices above the G-7 cap – and the Russian government has said it will not sell oil to any nation subscribing to the cap – could potentially subject Indonesia to U.S. sanctions.
Since the February 24 invasion, Jakarta has adopted a stance of neutrality in the conflict, condemning the action without explicitly condemning the aggressor. It has also declined to join the campaign of international sanctions against Russia.
The government is now in a position in which it needs to weigh the domestic benefits of cheap oil against the tensions with Western nations that could result from its decision to purchase Russian oil. In making this decision, it is likely to proceed with caution.
