Indonesia’s president Joko Widodo under pressure to import Russian oil

Indonesian president Joko Widodo has said the country needs to look at “all of the options” as it considers joining other Asian economies including India and China in buying Russian oil to offset soaring energy costs.

Indonesia has not imported significant amounts of oil from Russia for years, but Widodo’s government is under increasing pressure to curb rising costs after being forced to increase some fuel prices by up to 30 per cent this month.

Any move to buy Russian oil at a price above a cap being set by G7 countries could leave Indonesia vulnerable to US sanctions as it prepares to host a G20 summit in Bali in November. Widodo has invited world leaders including Russia’s Vladimir Putin and Ukraine’s Volodymyr Zelenskyy to the meeting.

“We always monitor all of the options. If there is the country [and] they give a better price, of course,” Widodo said in an interview with the Financial Times in response to a question on whether Indonesia would buy Russian oil.

“There is a duty for [the] government to find various sources to meet the energy needs of their people. We want to find a solution,” added Widodo, who is known as “Jokowi”, speaking at the presidential palace in Jakarta.

Widodo’s comments underscored the difficulty for many countries as they try to navigate geopolitics and the energy crisis hitting households and businesses worldwide.

Indonesia, south-east Asia’s largest economy, has long followed a policy of non-alignment with superpowers, with Widodo visiting Moscow and Kyiv in June, just months after Russia’s invasion of Ukraine in February, to personally invite their leaders to the G20 summit.

“It would be bad public relations actually if the government did it [bought Russian oil] as Indonesia is a non-aligned nation and was even a founder of the non-aligned nation movement,” said David Sumual, chief economist of Bank Central Asia in Jakarta.

Moscow has offered to sell oil to Indonesia at price that is 30 per cent lower than the international market rate, according to the country’s tourism minister. Pertamina, Indonesia’s state-owned oil company, said in August it was reviewing the risks of buying Russian oil.

But the US last week threatened to impose sanctions on buyers of Russian oil that did not observe a planned price cap and that used western services in the transactions, increasing the potential risk for countries dealing with Moscow.

Indonesia’s decision to reduce energy subsidies this month was spurred by a threefold increase in the cost of fuel subsidies from the original budget, to Rp502.4tn ($34bn).

Indonesia’s economy has weathered the energy crisis thanks to strong domestic consumption and high prices for two of its biggest exports, coal and palm oil, with gross domestic product growing 5.44 per cent in the second quarter from a year earlier.

Yet the rising fuel prices are expected to push inflation higher and force the central bank, Bank Indonesia, to increase interest rates, potentially hitting economic growth.

“Energy is closely related to the best interests of the people,” Widodo said.

If Indonesia were to join India and China in buying Russian oil, it would further help Moscow offset much of its lost income from a fall in shipments to Europe.

An FT analysis of Chinese and Indian customs statistics showed the countries imported 11mn tonnes more oil from Russia in the second quarter of 2022, compared with the first quarter.

Indonesia and Russia also have several large energy projects planned, including a $16bn refinery in East Java being built by Pertamina and Russia’s Rosneft. Russia’s state-owned Zarubezhneft has a half stake in the Tuna oil and gas exploration block in the South China Sea, an area close to Indonesia’s maritime border with Vietnam.

Regarding the G20 summit in Bali, Widodo said that along with Putin and Zelensky, world leaders expected to attend the event included Chinese president Xi Jinping and US president Joe Biden, adding that there was a chance the Ukrainian president might make his speech virtually.