High oil prices precipitated by the Iran War have been well reported across the globe. Waves of elevated costs have caused many countries to reevaluate their energy dependence, and East Asia is no exception to this. Various governments are implementing green energy solutions, turning to decarbonisation as an alternative to fossil fuels. Furthermore, regional economic partners are building partnerships to buffer against future price shocks.
In June of this year the Indonesian government announced the revival of a national B50 fuel mandate in an attempt to reduce reliance on imported crude. This means biofuel will contain a blend of 50% palm-based diesel (of which Indonesia is the world’s largest producer) and 50% conventional diesel. Indonesia taxes palm oil exports, and that tax money (through a fund called BPDP) is used to subsidize biodiesel, keeping it relatively affordable at the pump. Furthermore, according to Indonesia’s energy minister, this biofuel alternative is estimated to save Indonesia about 157 trillion rupiah ($8.78 billion) in fuel import costs this year.
Indonesia’s decision to roll out the B50 mandate has been met with some skepticism, as the government’s subsidy fund can support B50 only if a ton of palm oil costs less than roughly 10 times the price of one barrel of crude oil. This is incredibly dependent on oil prices, which have become increasingly unpredictable. Reuters reports that palm oil prices have been swinging back and forth, exacerbated by the Iran conflict. When fighting intensifies, diesel prices spike, making palm oil look cheap by comparison. When the conflict calms, diesel prices fall, and palm oil appears expensive again. Evidently, “the cost and effectiveness of [palm oil] policies increasingly depend on international energy price movements” (Dutta et al., 2021). Lastly, given the closure of the Strait of Hormuz, farmers who rely on fertiliser from the Middle East to grow palm tree crops are exposed to a second, compounding source of cost pressure.
Beyond the Iran War, what other factors might affect Indonesia’s road to self-sufficiency and energy security? Domestically, Indonesia’s own environmental conditions must be taken into consideration.
For months, wildfires spread across Indonesia, causing a thick layer of hazardous haze to descend across the region and to neighbouring Malaysia, Brunei and the Philippines. Repeated regional haze can be partially attributed to illegal slash-and-burn measures to clear large plots of land to make space for industrial plantations or commercial use. However, the BBC reports that the super El Niño weather patterns, combined with human activity, make the land even more vulnerable to destruction. The hotter and drier conditions, exacerbated by global warming, create drought conditions. Consequently, dried-out vegetation and peatland become far more flammable, causing fires to spread faster and burn longer. A professor from Institut Pertanian Bogor University predicts that an area as large as 11 million hectares could be burned this year as a result of El Niño alone.
As such, more research needs to be conducted as to how weather changes and global warming may affect Indonesia’s palm tree fruit, from which palm oil is extracted. One financial institution states that although palms are resilient plants, yield can be reduced during strong El Niño years. To put this into perspective, we turn to a case study of 1997 to 1998, in which Indonesia experienced its strongest El Niño event on record. During this period, the country produced 33,880 thousand metric tons of palm oil, significantly lower than 45,960 thousand metric tons generated in average non-El Niño years. Given that there is an exceptionally high likelihood that drought conditions will persist into 2027, Indonesia’s output may be disrupted.
Energy independence is evidently no easy feat. It requires years of investment, thorough government planning and resilience to both external and internal factors, such as geopolitics and climate. Indonesia’s ambitious B50 fuel mandate serves as a reminder of the multitude of factors that lie beyond any single government’s control. However, Indonesia also acts as a microcosm for the broader challenges facing resource-rich nations: that energy independence requires flexibility and diversification, not anchoring around a single commodity or idea.
Sources
https://www.sciencedirect.com/science/article/abs/pii/S0016236121000971
https://www.channelnewsasia.com/asia/indonesia-forest-fires-haze-2026-explainer-6362061
https://www.bbc.com/news/articles/clyqw44w142o
https://www.theguardian.com/environment/2026/aug/27/el-nino-climate-patterns-fossil-fuels
https://www.nhm.ac.uk/discover/palm-oil-controversial-ingredient-in-nearly-everything.html
https://ds5s82hcegdl8.cloudfront.net/uploads/2026/06/FINAL-82088_MAREX_PalmOil_Report_V2-1.pdf