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Indonesia State Energy Firm Pertamina Mulls Purchases of Russian Oil

The Indonesian state energy firm PT Pertamina is considering purchasing crude oil from Russia in order to take advantage of falling prices in the wake of President Vladimir Putin’s invasion of Ukraine. Addressing a parliamentary hearing yesterday, Reuters reported, Pertamina’s CEO Nicke Widyawati said that the firm saw “an opportunity to buy from Russia at a good price,” in the wake of the invasion, which has prompted the advanced democracies to impose a raft of sanctions and led the price of Russian oil to tumble.

“Politically, there’s no problem as long as the company we are dealing with was not sanctioned. We have also discussed the payment arrangement, which may go through India,” she told parliament.

Pertamina is searching for a crude oil supply for its Balongan refinery in West Java, which produces gasoline, gasoil, jet fuel, and polypropylene for supply to the densely-populated western half of Java as well as for the capital Jakarta. Nicke said that the refinery is currently in the process of an upgrade that will allow it to refine all types of crude oil, as well boosting its daily capacity from 125,000 to around 150,000 barrels per day. (Currently, Balongan can only process crude oil with a low sulfur content, which is relatively expensive.)

This opens it up to purchases of Russia’s Ural crude oil, the price of which has fallen far below Brent crude, the global oil benchmark, since the February 24 invasion. One oil industry analyst suggested that the gap between the prices for Russian crude and Brent crude could now be as much as $30 per barrel. (The price of Brent crude is currently just over $112.)

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Indonesia is not the only country to take advantage of the cut-price Russian oil. India has also announced that it will continue to buy oil from Russia, despite the existing Western sanctions. The country has contracts for March and April for six million barrels of Russian crude, the BBC reported this week.

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As this year’s president of the G20 (of which Russia is a member), the Indonesian government has attempted to steer a middle path on the Ukraine question, raising concerns about the invasion but stopping short of referring to Russia by name. President Joko Widodo, who is not known for taking a close interest in foreign affairs, reportedly views his nation’s chairmanship of the G20 as an opportunity to raise his country’s profile on the international stage, and is seemingly bent on avoiding any controversy, even as the U.S. and European countries push for Russia’s expulsion from the grouping.

Pertamina’s decision to buy Russian crude oil makes clear business sense, but is likely to court friction with the United States and European governments, which have erected an unprecedented (at least in recent times) wall of sanctions and investment bans designed to punish Putin for his invasion and hobble his ability to wage his war in Ukraine. These sanctions have targeted several of Russia’s largest energy firms, including Rosneft, Transneft, and Gazprom Neft, as well as the Russian banks that would presumably handle any payments to Russian oil majors.

As a result, depending on which companies it chooses to deal with and the technicalities of how the payments are made, any purchase of Russian crude oil would likely attract the attention of U.S. regulators and could conceivably expose the Indonesian state firm to secondary U.S. sanctions.

Of course, Europe is also continuing to import Russian gas and oil, even as it has sanctioned the companies that are piping and shipping it westward; explicit carve-outs have been added to the sanctions for exactly this reason. Of course, European nations are highly dependent on Russian energy, whereas for Pertamina this would be a purely discretionary purchase. At the same time, were this deal to go ahead, the Indonesian (or Indian) authorities could nonetheless make a similar case on the basis of national interests, of which energy security is a paramount consideration. In the case of India, the U.S. government stated this week that its Russian oil imports do not violate any sanctions, but that any “support for Russia…is support for an invasion that obviously is having a devastating impact.”

Indonesia’s decision also speaks to a broader ambivalence of the non-Western world regarding the war in Ukraine, and the Western response it has prompted. While the rich democracies of the world view Putin’s aggression as a landmark event – a crystalizing moment for the world to take a stand on universal values, and in which those not opposing the Russian invasion are effectively abetting it – views are much greyer in the developing world, where it is much more common to view the Russian invasion as a distant concern and different only in a matter of degree from past violations of international law by other powerful nations, including the United States. This it twinned with a wariness at the extraterritorial power that the U.S. wields by virtue of the dollar-based financial system.

The Pertamina purchases, should they eventuate, would demonstrate that for all the accumulated economic clout of the advanced democracies, the are considerable political challenges in completely cutting Russia off from the mainstream of the global economy.

Artmotion China

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