Indonesia ponders risk of Iranian oil import termination

| January 25, 2012 | 0 Comments

The Jakarta Post, January 25, 2012. As a net oil importer, Indonesia is poised to bear the brunt of the rising political tension between the world’s second-largest oil producer, Iran, and the US and its allies.

The impact of the embargo on Iranian oil by the allied West is already reflected in oil prices, which experts predict could soar to beyond US$150 per barrel should Iran retaliate by blockading the Hormuz Strait.

An estimated 18 million barrels of oil pass through the Strait each day, or about 20 percent of the world’s total oil output.

Indonesia depends on the strait for the delivery of 60,000 barrels of oil per day from Saudi Arabia to supply PT Pertamina’s refinery in Cilacap, Central Java, the spokesperson for the state-owned company, Mochamad Harun, revealed. The Cilacap refinery has a total processing capacity of 348,000 bpd of oil, or a third of the country’s total capacity.

“We import 60,000 bpd of oil from Saudi Aramco, while the remaining 300,000 bpd [for the Cilacap refinery] comes from the Asian markets like Singapore, China and Malaysia. As of today, there’s been no disturbance. The supplier will inform us if something happens to the delivery of the oil,” he told reporters over the phone on Tuesday.

On Monday, EU nations agreed in Brussels to stop importing oil from Iran as part of sanctions imposed on Iran in response to its nuclear program. The decision imposes an immediate embargo on new contracts for Iranian crude and petroleum products, while existing contracts will be allowed to run until July.

Harun estimated that the embargo and its impact on the Hormuz Strait might crank up global oil prices to more than $150 per barrel, which would severely affect Indonesia since the Cilacap refinery was specifically designed to process oil imported from Saudi Aramco.

To anticipate the eminent threat, Pertamina has requested government support for its plan to buy all oil produced by the country, including the shares of oil contractors which are mostly exported to get better prices.

The chairman of the Center for Petroleum and Energy Economics Studies (CPEES), Kurtubi, estimated that the closing of the Strait, should it happen, would instantly send oil prices up by $20 per barrel.

“As many as 18 million bpd of oil pass through the strait each day. If it’s closed, in just several hours, the price may soar by $20 per barrel and in between two to three days, the price could be above $150 per barrel,” he told The Jakarta Post.

He said that a supply disturbance to the Cilacap refinery would be very dangerous for Indonesia as most of fuel products widely used by the people were produced there.

Pri Agung Rakhmanto, an energy expert from the ReforMiner Institute, shared a different outlook. He argued that the global oil prices would stay between $110 and $120 per barrel.

“The prices will indeed increase, but we don’t know yet how high it will go. The US and its allies must have prepared strategies to anticipate the closure of the Hormuz Strait,” he said.

In response to the possibility of price increases, Finance minister Agus Martowardojo says that the government has enough reserves to mitigate any potential fluctuations in oil prices due to the escalating conflict in the Hormuz Strait.

“We have been continually monitoring the situation in the Middle East. If this situation drives oil prices to soar and affect our budget, then we will propose a revision to our [2012] state budget,” Agus said at the House of Representatives in Jakarta on Tuesday.

“We also have hefty cash reserves. We have Rp 15 trillion in our fiscal reserve, Rp 40 trillion in our social reserve, Rp 40 trillion in our non-fuel subsidy reserve and Rp 2 trillion in our rice reserve,” he added.

Agus claimed that the government has also been conducting research to anticipate changes in global conditions, since the first week of December last year.

“Our research focuses not only on fiscal and monetary stability but also on the importance of ensuring that our real sector grows and social security is insured,” he said.

Crude for March delivery rose as much as 60 cents to $100.18 a barrel and was down 44 cents at $99.14 on Tuesday at 1:53 p.m. London time. It settled at $99.58 on Monday, the highest since Jan. 19. Brent oil for March settlement was at $110.16 a barrel, down 42 cents, on the London-based ICE Futures Europe exchange.

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