Indonesia shields consumers from oil shock as energy import bill jumps 40%

[SINGAPORE] Indonesia is absorbing much of the global oil shock through its Budget, shielding households from the full impact of higher energy prices even as its import bill surges.

An analysis by The Business Times of Statistics Indonesia data found that the country’s oil-and-gas import bill jumped 40.2 per cent year on year to US$25.8 billion in the first seven months of 2026, far outpacing the 10.9 per cent increase in physical volumes.

Indonesia’s oil-and-gas trade deficit consequently widened 78.2 per cent to US$18.8 billion over the same period.

But economists said that Indonesia has buffers to absorb some of the shock. Government subsidies have limited the impact on household energy bills, while higher coal and palm oil prices are helping to offset the pressure from costlier oil imports.

The trade-off is a growing burden on public finances. Subsidies and compensation reached 331.4 trillion rupiah (US$18.4 billion) through to August, up 52.1 per cent year on year, as the government absorbed more of the increase in global energy costs.

Bank Indonesia (BI) data shows that the pressure intensified in the second quarter.

The value of oil imports climbed to US$11.6 billion from US$7.3 billion in the first quarter, even as volumes slipped to 88 million barrels from 90 million. Within that, the cost of refined-product imports jumped to US$7.8 billion from US$4.4 billion, while volumes rose more modestly to 57 million barrels from 54 million.

BI attributed the higher bill to rising international oil prices following the outbreak of conflict in the Middle East on Feb 28.

Brent crude has remained sharply above pre-war levels, rising from US$72.48 a barrel on Feb 27 to a peak of about US$126 in April. It was trading at around US$107.31 on Monday (Oct 19), about 48 per cent above its pre-war level, Bloomberg data showed.

Commodity exports cushion external pressure

The higher energy bill is also weighing on Indonesia’s external accounts, as the country has to spend more foreign currency to pay for imports. If that pressure persists, it could widen the current-account deficit, weigh on the rupiah and make it harder for BI to cut interest rates.

The current-account deficit – which broadly measures the country’s trade and income flows with the rest of the world – widened to US$12.5 billion, or 3.3 per cent of gross domestic product, in Q2 from US$3.6 billion, or 1 per cent of GDP, in Q1.

BI said that higher oil imports were one factor, with stronger non-oil imports and larger services and income deficits also contributing.

Still, Maybank Securities economist Brian Lee said the shock was “more significant for the fiscal position than for the external accounts”.

“Indonesia remains a commodity exporter,” he said. “During the current oil-price upturn, coal and palm oil prices have also risen as substitute energy feedstocks, benefiting Indonesia’s two largest export categories.”

Lee expects Indonesia’s current-account deficit to average 2 per cent of GDP in 2026.

Budget takes more of the strain

For households, the effect has been less direct, with fuel subsidies and administrative measures limiting increases in fuel and household energy prices.

“Indonesia has been able to limit the direct price pass-through through fuel subsidies and administrative measures,” said OCBC senior Asean economist Lavanya Venkateswaran.

“However, this has shifted the adjustment burden towards the current account, fiscal position, the exchange rate and the balance of payments.”

The sharp rise in subsidy spending has also far outpaced the increase in subsidised consumption.

Subsidised fuel volumes grew 8.8 per cent, while consumption of subsidised 3 kg liquefied petroleum gas (LPG) cylinders – commonly used for household cooking – increased 2.6 per cent.

In September, Indonesia’s Ministry of Finance said spending was affected by movements in the price of the Indonesian crude and the rupiah, as well as higher volumes of subsidised fuel, LPG and electricity.

Lee noted: “The fiscal channel is under greater strain and will likely matter more if oil prices remain elevated because the government continues to absorb much of the increase through fuel, LPG and electricity subsidies and compensation payments.”

He estimated subsidy and compensation spending through to August at 1.2 per cent of GDP.

Economists said the trade-off would become more difficult the longer oil prices remain elevated.

Keeping domestic energy prices low protects household purchasing power and helps contain inflation, but requires the government to devote more of its Budget to subsidies. Still, they do not see the higher bill as threatening Indonesia’s fiscal sustainability.

Venkateswaran said an energy subsidy bill of 3 per cent of GDP or more had historically tended to trigger retail fuel price adjustments, as the cost of shielding consumers became harder for the government to absorb.

She expects the subsidy bill to amount to just 1 to 1.2 per cent of GDP this year.

Lee similarly said Indonesia retained “meaningful buffers”, with the 2027 fiscal deficit target of 2.4 per cent of GDP comfortably below the statutory ceiling of 3 per cent.

Budget builds in higher oil price, weaker rupiah

The government has already factored tougher energy and currency environment into its 2027 Budget assumptions.

The Budget assumes an Indonesian crude price of US$75 a barrel and an exchange rate of 17,500 rupiah to the US dollar, compared with US$70 and 16,500 rupiah, respectively, in the 2026 Budget.

A higher oil price assumption allows the government to budget for greater energy costs, while a weaker rupiah assumption reflects the fact that imported oil becomes more expensive in local-currency terms when the currency depreciates.

“The 2027 assumptions are materially more conservative than those used in the 2026 Budget, but they may still prove optimistic if current conditions persist,” Lee said.

The finance ministry’s September update put this year’s average Indonesian crude price at US$89.20 a barrel and the average rupiah exchange rate at 17,415 per US dollar.

Higher energy prices could also complicate monetary policy even if subsidies prevent the full increase from feeding directly into retail fuel prices.

A weaker rupiah raises the cost of imports more broadly, while persistent energy pressures can still feed into inflation through transport, production and other business costs.

Venkateswaran said BI’s near-term focus was therefore likely to remain on rupiah stability and rising inflation pressures. OCBC expects one more 25-basis-point interest rate hike in 2026.

BI has already raised rates three times this year, by a combined 100 basis points, bringing its benchmark rate to 5.75 per cent. But OCBC does not expect the energy shock to derail GDP growth, forecasting expansion of 5.2 per cent this year and 5 per cent in 2027.

“The biggest warning sign would be a simultaneous deterioration across external accounts, fiscal metrics, and market confidence,” Venkateswaran said. “This is not our base case.”