Indonesia mulls buying oil from Russia despite Ukraine invasion

Tria Dianti
2022.03.29
Jakarta
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Indonesia mulls buying oil from Russia despite Ukraine invasion An employee pumps gas at a station in Tangerang, Indonesia, March 1, 2022.
AFP

Indonesia is considering buying crude oil from Russia, the Southeast Asian country’s state energy company said, amid Western sanctions against Moscow over its invasion of Ukraine.

The expression of interest by the state firm Pertamina came as reports surfaced about Russia looking to market its exports to Southeast Asia following sanctions by the United States on the country’s energy industry and plans by European countries to reduce dependency on Russian oil and gas.

“At the current prices and given the geopolitical situation, we see an opportunity to buy from Russia at a good price,” Nicke Widyawati, Pertamina’s chief executive, told a parliamentary hearing on Monday.

Company spokeswoman Fajriyah Usman said no decision had been made to purchase Russian oil.

“Mrs. Nicke was just exploring the possibility,” she told BenarNews on Tuesday.

Nicke told legislators that Pertamina was communicating with the Ministry of Foreign Affairs and Bank Indonesia, the central bank, about the potential purchase.

The company is upgrading its Balongan refinery in West Java to allow it to process all types of crude oil, including that from Russia, she said. The refinery was designed to process cleaner low-sulfur crude such as that produced by Saudi Arabia’s Aramco. 

Referring to a deal with Moscow, Nicke said any purchase of oil from Russia would be on a business-to-business basis, “as long as the companies we deal with are not subject to sanctions.”

Foreign Ministry spokesman Teuku Faizasyah declined to comment when contacted by BenarNews.

Earlier this month, Indonesia voted for a U.N. General Assembly resolution that condemned Moscow’s military strike on Ukraine, but Jakarta has not directly criticized Russia or used the word “invasion.”

After Moscow launched the invasion on Feb. 24, President Joko “Jokowi” Widodo posted on Twitter – without referring to Russia or Ukraine: “Stop the war. War brings misery to mankind and puts the whole world at risk.”

Net importer of oil

Once a major producer, Indonesia has for years been a net importer of oil.

Indonesia left the Organization of Petroleum Exporting Countries (OPEC) in 2009, but President Joko “Jokowi” Widodo decided to reactivate the membership in 2016 only to leave the grouping again later that same year.

Since the Ukraine invasion, Russian authorities and the nation’s oil producers have discussed massive production cuts as a result of Western sanctions, according to industry news site Upstream.

Russia’s chief oil regulator, Igor Shpurov, said output may have to be cut by as much as 2.3 million barrels per day if all oil exports to Europe and the U.S. were to be blocked, Upstream reported.

So far only the U.S. has banned Russian oil imports, but the United Kingdom will follow suit by the end of 2022, and the European Union is moving in the same direction, according to media reports.

Asian market

On Monday, Kremlin spokesman Dmitry Peskov said lost orders for Russian oil would be replaced by contracts with Southeast Asian countries.

“There is a market in Southeast Asia, in the east. Undoubtedly, falling out bids for oil will be compensated by bids from that Eastern direction,” he was quoted as saying in a release issued by the Russian embassy in Jakarta.

“After all, the world market is much more multifaceted than only the European one. Although, of course, the European market is top-grade,” he said.

Meanwhile, In Germany, Chancellor Olaf Scholz has said his nation would wean itself off of oil and coal imports from Russia, international news agencies reported. The European Union wants to reduce dependence on Russian gas supplies by 67 percent by the end of this year.

‘Opportunistic’

Bhima Yudhistira, director of the Center of Economic and Law Studies (CELIOS), called Pertamina’s plan to buy Russian crude oil “very opportunistic.”

“Indonesia is taking advantage of [a] non-aligned foreign policy. Indonesia is in dire need of cheaper oil, especially when the global oil prices remain above $100 per barrel,” he told BenarNews, adding those costs will be passed along to consumers

“It would mean that Indonesians have to endure higher prices [at the gas pump],” he said.

In addition, Indonesia risked Western ire if it goes ahead with the plan, Bhima warned.

“Indonesia may lose (Western) investment in the oil and gas sector or Indonesian products will be prevented from entering Europe and the U.S. if raw materials are found to be of Russian origin,” he said.

Bhima also said Indonesia should consider its status as this year’s president of the G20 group of major economies.

“Indonesia should continue to put pressure on Russia to stop the war in Ukraine. An end to the war will automatically lead to lower prices of crude oil,” he said. “It’s a better alternative that buying [Russian oil] at a discount.”

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