Indonesia adopts flexible energy policies, diversifies oil imports, boosts subsidies, and expands reserves to manage price volatility and strengthen energy security.
Indonesia is actively implementing flexible energy scenarios to navigate the significant volatility in global oil prices, primarily driven by escalating geopolitical tensions, particularly in the Middle East. As a net oil importer, Indonesia is highly vulnerable to these fluctuations, which pose direct threats to its fiscal stability, economic recovery, and the purchasing power of its citizens. Global crude markets have seen prices ranging from US$90 to US$120 per barrel, influenced by ongoing external economic and political developments, including concerns over key chokepoints like the Strait of Hormuz.
To mitigate these risks, the Indonesian government, led by Coordinating Minister for Economic Affairs Airlangga Hartarto, is adopting dynamic policy responses rather than rigid plans. A core strategy involves robust fiscal measures, including allocating energy subsidies and compensation within the 2026 state budget. This aims to safeguard consumer purchasing power and broader economic stability. The government also tracks energy procurement costs using average pricing mechanisms, which helps to temper the burden of subsidies despite sharp international price swings.
In terms of supply, Indonesia is diversifying its crude oil import sources, shifting away from the Middle East towards countries like the United States, Angola, Brazil, and Malaysia. This reduces reliance on high-risk maritime routes and enhances energy security. Notably, Indonesia has secured a US$15 billion energy procurement commitment with the United States, encompassing refined fuel products, crude oil for national reserves, and liquefied petroleum gas (LPG). Furthermore, trade policy adjustments are being considered, such as reducing import duties on LPG to zero from five percent to ensure adequate domestic supply.
Domestically, Indonesia is accelerating the development of its own energy sources, including biodiesel, and emphasizing the expansion of alternative energies to bolster long-term energy security and lessen exposure to global market shocks. Efficiency measures are also critical, with the government implementing flexible work arrangements, including work-from-home schemes, for civil servants. This initiative aims to curb fuel consumption across state institutions, with potential significant savings in gasoline usage. Looking ahead, Indonesia plans to expand its crude oil storage capacity from the current 25–26 days to 90 days, aligning with international standards to further fortify its energy reserves. These comprehensive strategies underscore Indonesia's commitment to maintaining economic stability and energy sovereignty amidst an unpredictable global energy landscape.
