Indonesia Fuel Prices: Government Policy Amid Rising Global Oil Costs

The Indonesian government is maintaining subsidized fuel prices despite a surge in global oil costs driven by escalating conflict in the Middle East. The administration of President Prabowo Subianto is utilizing the state budget as a shock absorber to prevent domestic inflation and preserve social stability.

Finance Minister Purbaya Yudhi Sadewa stated on April 2, 2026, that the government will hold off on raising subsidized fuel prices to defend economic growth. Purbaya warned that removing these subsidies would lead to increased inflation and a higher cost of capital, which could trigger street protests and significantly lower economic growth.

If we remove the subsidies, inflation will increase, the cost of capital will increase. There will be more protests on the streets, which will lower economic growth quite significantly. It’s a very risky policy.

Finance Minister Purbaya Yudhi Sadewa

Fiscal Measures to Offset Oil Shocks

To absorb the financial impact of rising energy prices without exceeding legal deficit limits, the government is implementing a combination of fiscal measures. These include broad 10 per cent cuts to ministry spending and the consideration of a new export tax on coal.

On March 19, 2026, Purbaya explained that the energy subsidy mechanism is structured within an annual budget framework. This allows the government to anticipate fluctuations in global oil prices. He noted that the government is pursuing spending efficiency and efforts to increase state revenue to ensure the budget remains secure while protecting consumers from volatile markets.

The government has expressed concern that allowing global price hikes to pass through to consumers could cause public panic, a phenomenon observed in other nations.

Global Oil Market Pressures

The pressure on the Indonesian budget stems from a significant gap between projected and actual oil prices. According to the 2026 State Budget, the Indonesian Crude Price (ICP) was set at US$70 per barrel. However, by March 3, 2026, market prices had risen to between US$78 and US$80 per barrel, and subsequent reports indicated prices hovering above US$100 per barrel.

Minister of Energy and Mineral Resources Bahlil Lahadalia stated on March 3, 2026, that domestic subsidized fuel prices would remain the same regardless of how high global prices rose, unless the government decided otherwise. Bahlil acknowledged that while a higher ICP increases government spending on subsidies, Indonesia’s production of approximately 600,000 barrels of oil per day generates some offsetting revenue.

Strategic Import Redirection

Geopolitical instability has forced Indonesia to alter its energy procurement strategy. The country currently imports 25 per cent of its crude oil from the Middle East, with the remaining supply sourced from the United States, Brazil, Africa, and other regions.

Due to the closure of the Strait of Hormuz amid the conflict involving the US, Israel, and Iran, the Indonesian government is redirecting its Middle East imports to the United States. This shift aligns with the Agreement on Reciprocal Trade (ART), under which Indonesia has committed to purchasing US$15 billion worth of liquefied petroleum gas and fuel from the US.

Domestic Stability Measures

Beyond fiscal adjustments and import shifts, the government has introduced specific domestic restrictions to manage fuel demand and maintain stability. These measures include implementing a limit on fuel sales of 50 litres per day per car.

the government in Jakarta plans to implement a work-from-home policy for civil servants to reduce overall fuel consumption and mobility.

Bahlil Lahadalia further noted on March 3, 2026, that the government is closely monitoring national supplies of gasoline, diesel, and liquefied petroleum gas to prevent shortages, particularly during the Ramadan period and accompanying holidays.