Risky Energy Agreement
Indonesia’s freshly announced major energy deal with the United States could have unintended negative consequences for government spending and its oil trade deficit. The agreement, reached between President Prabowo Subianto and his American counterpart Donald Trump, entails a significant reduction in the US’s reciprocal tariffs on Indonesian goods, from 32 percent to 19 percent. However, this favorable tariff rate comes at a cost, as Indonesia has committed to purchasing up to $15 billion in American energy imports, among other concessions. According to senior economist Bhima Yudhistira, this is far from a “win-win” scenario and could worsen Jakarta’s oil and gas trade deficit, which already stood at approximately $7.7 billion in the first five months of 2025. The deficit has been a consistent monthly issue since January 2024, and this new agreement could exacerbate the problem.
Worsening Deficits and Fiscal Pressure
The analyst warns that a worsening oil and gas trade deficit would likely put substantial pressure on the Indonesian rupiah. More significantly, it could lead to a steep increase in the country’s energy subsidies for the 2026 fiscal year. Based on Bhima’s calculations, Indonesia might need to allocate between Rp 300 trillion and Rp 320 trillion, or up to $19.6 billion, in its annual state budget for these subsidies, especially if fuel imports are increased. This projection represents a massive gap compared to the Rp 203.4 trillion allocated for energy subsidies this year. Amid these concerns, Bhima suggests that it would be more prudent for Indonesia to transition away from fossil fuels to reduce its dependence on imports. He also expressed worry that Indonesia might be forced to purchase American energy at prices above the market rate due to the trade deal’s obligations. In addition to the energy commitment, Indonesia also agreed to purchase $4.5 billion in American farm products and 50 Boeing jets.
The Government’s Stance and Business Pacts
Despite the concerns raised by economists, President Prabowo Subianto defended the deal, acknowledging that Donald Trump was a “tough negotiator” but assuring the public that the government had “calculated everything.” He explained that the agreement was a meeting of mutual interests, as Indonesia needs to import gas and fuel to meet its domestic demands. Providing further context, state-run energy firm Pertamina had already signed three memoranda of understanding (MoUs) with American oil majors ExxonMobil, Chevron, and KDT Global Resources prior to the formal deal. Pertamina’s spokesman, Fadjar Djoko Santoso, stated that these MoUs were aimed at “optimizing the feedstock or crude oil for national energy security” and exploring other areas of cooperation, such as downstream refinery investment. He also clarified that these were general agreements that had not yet specified monetary values.
