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OIL AND GAS - JAKARTA. PT Pertamina Tbk, Indonesia's state-owned oil and gas company, is reportedly purchasing crude oil from Russia. The decision is driven by the lower prices of Russian oil compared to the international market, making it an attractive option for Indonesia.
Despite the cost benefits, Pertamina's decision to import from Moscow could have political implications for Indonesia's relations with the Western world, particularly the United States.
Komaidi Notonegoro, an Energy Observer from the Reforminer Institute, suggests that the main issue surrounding the plan to purchase oil from Russia is its potential impact on Indonesia's diplomatic relations with the United States and the European Union.
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"By buying oil from Russia, it could be perceived as if Indonesia is supporting the invasion of Ukraine," he told KONTAN on Thursday (1/8/2024).
According to Komaidi, if this is seen as support for Russia's invasion of Ukraine, it could lead to a rejection of Indonesian goods in the global market.
"That's the main issue, not the oil specifications matching Pertamina's refinery conditions. There could be negative sentiment towards Indonesian products," he explained.
However, Komaidi says, these concerns should not be exaggerated. The purchase of Russian oil is purely a business matter unrelated to the Russia-Ukraine conflict.
"Pertamina buying Russian oil does not mean supporting Russia's invasion of Ukraine, we just need oil from cheaper sources," he said.
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So, what is the impact on Indonesia's diplomatic relations with the United States? Essentially, because the oil purchase is a business matter, the likelihood of causing tension with Western countries is not significant. "Currently, China and India are also buying oil from Russia," Komaidi noted.
He added that concerning the option of buying Russian oil, Pertamina could get a good price as it is promised a price cut of up to 30% from the international oil price.
"The oil specifications are no longer a problem, as Pertamina's refineries are equipped with technology capable of processing various types of crude oil," he elaborated.
It should be noted that the last time Pertamina purchased Sokol oil and a mixture of Eastern Siberia was more than 10 years ago. A few months after Russian troops invaded Ukraine, Indonesian President Joko Widodo (Jokowi) decided to consider following China and India in buying oil from Russia.
Pertamina has added two types of Russian oil, Ural and Sokol, along with other oils to the tender list for purchase in September 2024 as reported by The Moscow Times. However, the winner of the oil purchase tender has not been announced yet.
When confirmed, the Corporate Secretary of PT Kilang Pertamina Internasional (KPI), Hermansyah Y Nasroen, did not provide detailed information about the tender offer for the purchase of oil from Russia, including the winner.
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"We always ensure that we purchase crude oil according to the specifications needed by each refinery and comply with applicable regulations, including if it is from Russia, it is done with a price cap mechanism," he told KONTAN on Thursday (1/8/2024).
The price cap mechanism is a regulation of the maximum allowable price for a particular product or commodity. In the context of trading Russian crude oil, this mechanism regulates that oil can only be sold below a certain price limit.
The purpose of this mechanism is to limit the revenue of the selling country, in this case, Russia, and ensure that trade continues at a controlled price. Unfortunately, Hermansyah did not explain how much oil would be imported from Russia for the tender offer in September.
Previously, in December 2022, Western countries set a price limit for Russian oil at US$ 60 or Rp 972,837 per barrel to try to minimize Moscow's revenue flow following the country's invasion of Ukraine.
This price limit also prohibits shipping companies, insurance, and reinsurance from handling Russian crude oil cargoes worldwide, unless sold at a price below this limit.
