Indonesia Quits OPEC

Indonesia has just announced that it is leaving the Organization of Petroleum Exporting Countries because the price of oil is too high and it no longer exports the stuff. Energy Minister Purnomo Yusgiantor explained, “Actually there is also one rationale -- that we are not happy with the high oil prices. Because we are an oil producer and we are an oil consumer.” Indeed, Indonesia has been an oil importer for some time.

Mr. Purnomo said that if the situation changes, if Indonesia returns to the ranks of petroleum exporters, then it would rejoin the cartel. He noted, “We learnt from Ecuador, they pulled out and they came back again to OPEC. In the case of Indonesia, if our production comes back to the level that gives us the status of a net oil exporter, I think we can also go back again.”

Indonesia has been an OPEC member since 1962. Back then, the country was far less industrialized, had far fewer private vehicles on the road, and had oil wells recently refurbished after World War II (as the Dutch East Indies, Indonesia was Japan’s main source of petroleum after it occupied the area in December 1941). Now though, its wells are old and rapidly running dry, there has been little investment to improve yields, and the country has made no new petroleum discoveries.

As a result, Indonesia’s influence in OPEC has declined in recent years. Angola, for instance, has joined OPEC and will add capacity of about 2 million barrels per day by next year. Ecuador, which rejoined last year, is contributing just over 500,000 bpd. Indonesia, by contrast, produced 950,000 bdp last year, and will be lucky if it can put 927,000 bpd on the market this year. According to OPEC figures, its production peaked in 1977 at 1.686 million bpd.

Although the government still subsidizes petroleum prices in a country where most live on less than $2 a day, it put prices up on Saturday by 30% to take some pressure of the cost of imports. The Australian reported, “Student protests before Friday night's announcement led to scuffles with police, and the most serious incident, at Jakarta's National University, ended with damaged buildings, arrests and calls for an inquiry into alleged human rights breaches. The country is also hurting from savage food price hikes, with inflation at about 9per cent last month and expected to rise to at least 12per cent next month. Jakarta has offered 14trillion rupiah cash handouts for the poorest families to cushion the fuel price rise, with payments of 100,000 rupiah a month until the end of the year.” Nevertheless, Indonesia is sitting on a time-bomb and the oil fuse is burning.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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