GTI - Indonesia is responding to the threat of an oil and gas (LPG) supply crisis in Indonesia due to Iran's partial closure of the Strait of Hormuz following the US-Israeli attack on February 28th. The Indonesian government has announced it will take several steps to anticipate the crisis.
President Prabowo has instructed his staff to implement several programs, including the 100 GW solar power plant (PLTS) program, including the replacement of diesel power plants (PLTD) with PLTS and battery energy storage systems (BESS), the conversion of 120 million internal combustion engines to electric ones, work from home (WFH) one day a week, and the acceleration of the 50% biofuel blending program (BBN), often referred to as B50.
In a press conference on Tuesday (march 31st), Coordinating Minister for Economic Affairs, Bahlil Lahadalia outlined eight anticipatory steps, including the aforementioned programs, within the framework of transforming the national work culture to be more efficient and productive. Other strategies include budget efficiency specifically for official travel, energy-saving directives, and a daily fuel purchase limit of 50 liters.
Bahlil also stated that Indonesia has identified sources of fossil fuel supplies from other countries to secure supplies, and that Indonesia's energy reserves (fuel and gas) currently exceed the national minimum standard.
Minister of Investment and Downstream Development, Rosan Perkasa Roeslani, added that the government will also accelerate the development of renewable energy, including solar and geothermal energy, to reduce the vulnerability of Indonesia's energy system.
This directive for transforming the national work culture will take effect on April 1, 2026, and will be evaluated after two months.
Public Response
Many people appreciate the government's response to the crisis by encouraging an energy transition to reduce dependence on fossil fuels, promoting energy efficiency, and diversifying oil supplies to prevent a more severe supply crisis.
Some argue that guaranteeing fuel availability is appropriate to curb panic buying, but public trust can only be maintained if the government regularly discloses energy supply data and is honest about its crisis-prevention measures. The public is currently highly sensitive to the gap between official claims and the reality on the ground; Therefore, open communication regarding the actual condition of LPG and fuel stocks is key to preventing detrimental speculation and increasing public trust.
Amidst the surge in Brent oil prices, which have reached US$115/barrel, the Indonesian government must be extremely cautious in promising to maintain subsidies without clear limits, considering that every US$1 per barrel increase causes a state budget deficit of up to Rp 6.7 trillion. The subsidy budget risks ballooning to Rp 460 trillion this year if the average price remains at US$94/barrel, a figure that could cripple the state budget's health. The policy narrative must begin to manage public expectations that fiscal space has limits, especially as the US$70/barrel ICP assumption in the state budget is no longer relevant given current global market volatility.
Energy subsidies must be immediately shifted from commodity-based subsidies to targeted direct subsidies for poor households to stem inefficient budget leakage. Many have suggested that this reform roadmap begin in stages starting in 2027, prioritizing the electricity sector first to minimize direct shocks to inflation and public purchasing power. This step is not simply about budget efficiency, but rather a structural transformation to ensure that national energy security is not continually held hostage by the volatility of global commodity prices.
In addition to rising oil prices, there is also an increase in fuel procurement costs due to higher insurance premiums and rising transportation costs due to oil procurement from the United States (US), Brazil, and Russia as an alternative to Middle Eastern imports. The public needs to understand the consequences of rising oil prices and the increase in fuel procurement costs resulting from the ongoing supply disruption, as they will indirectly bear these costs.
Profit or Loss ?
Meanwhile, according to Said Didu, a public policy observer, the closure of the Strait of Hormuz or the US-Israel-Iran war not only resulted in numerous casualties but also brought economic benefits to Indonesia. According to Said, three pillars are impacted during the crisis: food, energy, and the exchange rate. Because the Indonesian economy is supported by natural resources, increases in the prices of oil, gas, LPG, coal, nickel, and tin will benefit the Indonesian economy.
"Oil prices, at 540.000 barrels per day, have risen by $50, resulting in a daily increase in revenue of $390 billion. The gas subsidy is $370 billion per day, meaning a $20 billion surplus.
Gas, LPG, and fuel subsidies are $375 billion per day. Coal production has increased by 30%. Coal production has been reduced from $800 million to $600 million, but if increased, it could be increased to $800 million, thus increasing revenue. Export taxes must be increased because this is a windfall. Nickel production has increased by 20% to 370 million tons; tin has increased by 16% to 21.000 tons; this could be increased to 50.000 tons. Copper has increased by 20%. This means there are blessings alongside the disasters caused by this war. Because Indonesia's economy is supported by natural resources, this is an advantage for Indonesia, as long as food security and the exchange rate are not disrupted."