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US Looks to Key Asian Partners as Indonesia 'Likely to Reject' Calls for Russian Oil Price Cap

SCMP, August 11, 2022

 

Post US officials have called for a potential price cap on Russian oil, file, August 11, 2022 scmp Bloomberg

 

US looks to key Asian partners as Indonesia ‘likely to reject’ calls for Russian oil price cap

Washington to approach Malaysia, Australia and Japan on supporting efforts to bring Russian oil prices down, official says Indonesia’s foreign policy principle means it is unlikely to side with either the West or Russia, as it waits on China and India’s moves, analyst notes

Resty Woro Yuniar

SCMP, 8:15pm, 11 Aug, 2022

The United States will look to key strategic Asian partners such as Japan and India to support a price cap on Russian oil, as analysts say Indonesia is likely to reject lobbying attempts on the matter this week.

US Assistant Secretary for Terrorist Financing and Financial Crimes Elizabeth Rosenberg was in Jakarta on a two-day visit earlier this week to meet her counterparts from the Coordinating Ministry for Maritime and Investment Affairs, the Ministry of Finance, the Ministry of Energy and Mineral Resources, and the Financial Transaction Reports and Analysis Centre, as well as private sector leaders.

During these meetings, Rosenberg “condemned Russia’s unprovoked and unjustifiable war in Ukraine and discussed efforts to mitigate the war’s spillover effects, including through a potential price cap on Russian oil”, according to a statement by the US Department of the Treasury.

Rosenberg was piggybacking on efforts by US Secretary of Treasury Janet Yellen during the G20 finance ministers and central bank governors meeting in July. Yellen had spoken to Indonesia’s finance chief Sri Mulyani and Luhut Pandjaitan, coordinating minister for maritime and investment affairs, urging them to support the price cap scheme.

At that time, Sri said Indonesia would consider the implications of the Russian oil price cap as it would “heavily affect oil-producing countries and their buyers”.

Aside from Indonesia, the US will also talk Malaysia, Australia and Japan into supporting G7’s goal to bring Russian oil prices down, a Washington official told Indonesia’s English-language newspaper The Jakarta Post.

“There are two kinds of countries that are in the G7+, countries that are exporting oil from Russia [and] those that do not export but provide financial and insurance services on oil transportation,” said the official, who spoke on condition of anonymity.

If Jakarta were to support the proposal, the official claimed the move would be “beneficial” as the government is currently paying “a lot of money in [oil] subsidies”.

This year, Indonesia is allocating 502 trillion rupiah (US$34 billion), which jumped from 170 trillion rupiah last year, for fuel subsidies due to the high price of crude oil. While President Joko Widodo on Tuesday acknowledged that the current oil subsidies are “too high”, Jakarta said there is no plan to increase the price of subsidised fuel as the country’s inflation is still deemed under control.

The official also said G7 is concerned about Moscow’s reaction to the scheme, “with the worst-case scenario being the complete halt of Russian oil sales”. But if the market price exceeded the production cost of US$10 per barrel, Moscow might still be willing to resume production, the official said.

Staying neutral

At the summit in June, G7 leaders said they would consider putting a price ceiling on Russian oil to curb the Kremlin’s source of war funds, with a price-capping mechanism expected to take place by December 5. Analysts say Jakarta is unlikely to support the G7’s proposal, as it would like to wait and see whether China and India would be on board with the scheme.

“Between the G20 countries, China and India matter more in this regard than Indonesia, as China is one of the largest importers of Russian oil,” said Bhima Yudhistira, executive director at Jakarta-based Centre for Economic and Law Studies.

Bhima also cited Indonesia’s free and active foreign policy principle, which means it will not side with either the West or Russia.

“Indonesia is unlikely to join the price-capping scheme as supporting it means sanctioning Russia and Indonesia does not want to get involved that far,” he said.

According to Bhima, Indonesia’s oil import from Russia is “not significant” compared to the amount it imports from Singapore-based crude oil traders.

It is, however, understandable that the US will try to get Indonesia to support the proposal as it is currently the chair of G20, which includes Russia as a member.

“The US expects Indonesia to boost the political pressure for Russia to end its war in Ukraine,” Bhima said.

Muhammad Faisal, executive director at Jakarta-based Center of Reform on Economics, agreed it will be “difficult” to get Jakarta on board with the scheme.

“The price-capping scheme will also have to take Russia’s response into account. If Russia agrees to the price capping, which is unlikely, Indonesia and the other G20 members will benefit as oil prices will be cheaper,” he said.

But other factors will also determine crude oil prices, such as decisions made by the Organisation of the Petroleum Exporting Countries and global recession, which will weaken demand.

“If the global demand for oil declines due to recession, oil prices will get cheaper, so Indonesia will not have to risk its political neutrality just to get crude oil at cheaper price,” he said. 

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Resty Woro Yuniar is a Jakarta-based reporter who covers Indonesian current affairs and Southeast Asia's tech scene. She was previously Indonesia correspondent at the BBC and tech reporter with The Wall Street Journal

US looks to key Asian partners as Indonesia ‘likely to reject’ calls for Russian oil price cap | South China Morning Post (scmp.com)

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