ASEAN win | Economie | Southeast Asia
But Jakarta is likely to carefully weigh the domestic political benefits of cheap oil against a possible international response.
The headquarters of the Indonesian state oil and gas company Pertamina is in Jakarta, Indonesia.
Credit: Flickr / Yes, I’m in East Bali
Indonesia’s energy minister said on Friday that Indonesia remains open to buying cheap oil “from anywhere,” including Russia, in order to keep the domestic fuel price in check.
According to a Reuters report, Minister Arefin Tasrif told reporters that the government had not yet bought Russian oil – and claimed it was not yet available to Indonesia – but was open to buying cheap oil from any country. “We haven’t bought it yet because the goods are not available,” he said. “If there is cheap oil from anywhere, of course we will buy,” he added.
Arivin’s comments came two weeks after President Joko “Jokowi” Widodo said his administration was still studying the potential benefits of buying cheap oil from Russia.
“We are always watching all options,” the Indonesian leader told the Financial Times when asked if Indonesia would deal with Moscow over oil. “If there is a country (and) they offer a better price, of course.”
At the beginning of September, Jokowi’s government reduced fuel subsidies to reduce pressure on the national budget. This sent prices of gasoline and subsidized diesel up from 51 cents to 67 cents a liter and diesel from 35 cents to 46 cents – the first such increase since 2014.
Price, fuel and other commodities are a subject of great political sensitivity in Indonesia, and the government has long reserved the right to intervene in market workings in order to ensure commodity prices remain low. Last year, it intervened in the coal and palm oil markets to prevent the rise in electricity and cooking oil prices respectively. It also has a decades-old fuel subsidy system that ensures the flow of diesel and low-cost gasoline to the Indonesian public.
Announcing the subsidy cuts earlier this month, Jokowi described the move as the government’s “last option” after government budget allocations for fuel subsidies fell from $10.2 billion to $33.8 billion, as a result of rising global oil prices, a side effect of the invasion. President Vladimir Putin of Ukraine, and the simultaneous weakening of the Indonesian rupiah. The fuel price hike immediately sparked small protests across the country, led by labor unions and student groups.
In this context, cheap Russian oil – cheap due to the fact of Russia’s increasing international isolation – has undeniable appeal for domestic political reasons. Back in March, Indonesian energy company PT Pertamina said it was considering buying crude oil from Russia to offset higher global oil prices.
However, the fact that Indonesia has not yet moved in this direction suggests that it is being cautious, taking into account the potential impact of the Russian oil deal on its relations with Western countries such as the United States. At the beginning of the month, the Group of Seven major nations agreed to impose a cap on the price of Russian oil in order to impede Moscow’s ability to finance its war in Ukraine. Any move to buy Russian crude at prices above the G7 ceiling – and the Russian government has said it will not sell oil to any country involved in the cap – would likely expose Indonesia to US sanctions.
Since the invasion on February 24, Jakarta has adopted a neutral stance in the conflict, condemning the action without explicitly condemning the aggressor. It also refused to join the international sanctions campaign against Russia.
The government is now in a position where it needs to weigh the domestic benefits of cheap oil against the tensions with Western countries that might result from its decision to buy Russian oil. In making this decision, it is likely to proceed with caution.