Indonesia has announced plans to increase its crude oil imports following a dramatic drop in global prices. Brent crude fell to $26.17 on March 19, marking its lowest level since 2003.
The decline followed Saudi Arabia’s decision to cut prices and boost production after Russia rejected deeper output reductions proposed by OPEC. Energy Minister Arifin Tasrif stated on March 23 that the government intends to “maximise purchases while the market is distressed.” President Joko Widodo has directed ministers to reassess fuel subsidies and the state budget’s exposure to oil price fluctuations. Jakarta aims to reduce import costs for state-owned Pertamina and lower pump prices for consumers.
The Energy and Mineral Resources Ministry instructed refiners on March 20 to increase term contracts and spot cargo purchases “as long as prices stay below $30,” according to a senior official. Pertamina typically imports 300,000 to 400,000 barrels per day of sour crude for its refineries, which are designed for Middle Eastern grades.
With Dubai cash differentials now at minus $5 compared to Brent, traders estimate the company saves approximately $12 per imported barrel versus January levels. “We have instructed Pertamina to secure additional volumes for second- and third-quarter delivery,” Minister Arifin Tasrif told reporters on March 23. “Storage is limited, so we will prioritise crude that can reach our ports within thirty days.” President Widodo echoed this directive during a cabinet meeting the same morning.
“He told us to calculate the impact on subsidised and unsubsidised fuel prices and how long the dip might last,” a palace aide quoted the president as saying.
Budget Revenue Faces Significant Pressure
The same price decline that reduces import expenses creates a substantial gap in state finances. Indonesia’s 2020 budget assumed Brent at $63 and average Indonesian crude at $60. Finance Ministry data shows every dollar decrease in the local benchmark reduces non-tax revenue by Rp 2.1 trillion ($145 million). With prices more than halved, Finance Minister Sri Mulyani warned the treasury could lose Rp 60 trillion ($4.1 billion) unless prices recover before June.
“Lower crude prices and reduced activity in the oil and gas industry pose threats to the state budget,” the minister told legislators on March 23. Royalties, profit-sharing, and corporate income tax from contractors contributed Rp 127.3 trillion last year, representing 35 percent of total non-tax receipts.
“We will reassess this year’s budget as well as the 2021 outlook,” she added. Jakarta has proposed widening the fiscal deficit from 1.8 percent to 2.5 percent of GDP, with bond traders suggesting another 50 basis points could follow if Brent stays below $35 through summer.
Storage Limitations Restrict Buying Capacity
Indonesia holds 22 million barrels of commercial and strategic storage, sufficient for 25 days of net imports. This falls well short of the 90-day cover recommended by the International Energy Agency. Pertamina has leased two very-large crude carriers off Batam island, adding 4 million barrels of floating capacity, though demurrage costs reduce potential savings.
The ReforMiner Institute warned the window for purchasing cheap oil could close rapidly. “If prices rebound to $40, the opportunity is gone,” executive director Komaidi Notonegoro said.
“Indonesia needs more onshore tanks and regulatory clarity before the next crash.” Construction of two 5-million-barrel caverns in East Java, delayed since 2017, is now under “re-evaluation,” the energy ministry confirmed.
Consumer Prices May See Reductions
Pump prices remain unchanged, with subsidised gasoline at Rp 6,450 ($0.45) per litre and diesel at Rp 5,150. Under the 2017 Oil and Gas Law, the government can adjust prices only if the 15-day moving average drops at least 5 percent from the reference price used in the last adjustment.
Officials said this threshold will be reached by early April. Private retailers Shell and BP-Akris have already reduced non-subsidised grades by Rp 300-400 per litre. Analysts expect the state to implement a Rp 500 cut for subsidised products, potentially saving motorists approximately $1.5 billion annually if prices remain low.
