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10 May 2015

Will Indonesia Return to OPEC?

May 08, 2015

The country’s energy ministry says it is considering doing so. 

Indonesia is considering rejoining the Organization of the Petroleum Exporting Countries (OPEC), the Wall Street Journal reported May 7.

According to the report, Minister of Energy and Mineral Resources Sudirman Said said that he would ask President Joko “Jokowi” Widodo to consider rejoining OPEC as a member so the country would be “close to the market.”

Indonesia has technically always left the door open for its potential reentry into OPEC. When it left the organization in 2009 after nearly five decades of being a member amid declining oil production and surging oil prices, then Energy Minister Purnomo Yusgiantoro publicly said that Indonesia may become an OPEC member again if it becomes a net oil exporter in the future. Indeed, at the time Purnomo cited the case of Ecuador, which pulled out from the organization but returned again in 2007, as an example which Indonesia had learned from.

Now, reports indicate that Sudirman envisions a gradual approach for Indonesia’s potential reentry into OPEC. He says he will attend OPEC’s meeting on June 5 as an observer – as non-members have done in the past – and that there may be opportunities to later become a full member. Sudirman noted that becoming an OPEC member again would not be a problem because Indonesia is still exporting a small amount of natural gas. Technically, the OPEC Statute states that any country with a “substantial net export” of crude petroleum and which has “fundamentally similar interests” to those of Member Countries may join the group as a full member if accepted by three-fourths of full members. Procedurally, Indonesia’s departure from the group was designated a “suspension,” and the Ecuador set a precedent for a return from such a suspension as Purnomo once noted.

Even if Indonesia does rejoin OPEC, some are unconvinced about exactly what it would do for the country. Indeed, even before it officially left in 2009, some had questioned the wisdom of staying in the organization for various reasons including the country’s lack of influence as a net oil importer, the way in which the grouping handled high prices, and even the high financial cost of membership which was over $3 million. Proponents, however, argued then as well as now that in spite of all this, having a seat at the table would give Jakarta the ability to influence global oil prices during times of crisis.

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