Indonesia-U.S. Trade Deal Raises Concerns Over Energy Independence

A recent trade agreement between Indonesia and the United States, finalized in February 2026, is sparking debate over Indonesia’s commitment to its long-stated goal of energy self-sufficiency. While initially intended to circumvent potential U.S. Tariffs, the deal—which includes a commitment from Indonesia to import $15 billion worth of U.S. Oil and gas annually—has come under scrutiny following a Supreme Court decision voiding the legal basis for those tariffs.

A Deal Born of Protectionism, Now Questioned

The U.S.-Indonesia Agreement on Reciprocal Trade was initially positioned as a strategic move to avoid protectionist tariffs proposed by the Trump administration. However, the timing of the agreement, coupled with the subsequent Supreme Court ruling, has led to accusations that Indonesia may have entered into an unfavorable bargain. Jakarta committed to substantial fossil fuel purchases just as the justification for avoiding tariffs disappeared. This has been described as a diplomatic miscalculation and a potential setback for Indonesia’s energy independence ambitions.

The Cost of Fossil Fuel Dependence

Indonesia’s commitment to import substantial quantities of oil and gas carries significant economic implications. Even before the deal, Indonesia’s trade deficit with the U.S. Reached $23.7 billion in 2025. Fossil fuels are inherently subject to price volatility, leaving Indonesia vulnerable to fluctuations in global markets, currency exchange rates, and geopolitical events.

The state electricity utility, PT Perusahaan Listrik Negara (PLN), has already seen significant increases in coal and gas purchase costs since 2020. To maintain affordable energy prices for consumers, the PLN relies heavily on government subsidies, which are projected to cost Indonesia approximately $60 billion over the next decade. These costs will be borne by Indonesian consumers, either through direct subsidies or higher energy bills.

Infrastructure Investments and the Risk of Stranded Assets

Beyond the cost of the fuel itself, Indonesia will be required to invest in infrastructure to accommodate the increased imports of U.S. Oil and gas. This includes LNG receiving terminals and gas pipelines. However, as the world shifts towards decarbonization, these investments risk becoming “stranded assets”—infrastructure that loses its value before the end of its useful life.

The Global Shift Towards Renewable Energy

The agreement with the U.S. Comes at a time when renewable energy sources are becoming increasingly cost-competitive. U.N. Secretary-General Antonio Guterres has characterized the fossil fuel era as “flailing and failing.” Globally, solar and wind power have surpassed fossil fuels as the lowest-cost energy sources, and this trend is expected to continue. The need for the U.S. To actively seek buyers for its oil and gas suggests a weakening market for fossil fuels.

Indonesia’s Renewable Energy Potential

Indonesia possesses substantial untapped renewable energy resources, with a potential of up to 3,686 GW from water, wind, and solar sources. However, prioritizing trade deals that lock in fossil fuel imports may divert investment away from developing these domestic renewable energy technologies.

Industry Support for Renewable Transition

A recent survey indicates strong support for a transition to renewable energy within the business community. 97 percent of business executives surveyed in 15 major economies, including Indonesia, support moving away from fossil fuels, with a majority advocating for this shift within the next 10 years.

A Choice for Indonesia

With the legal basis for the U.S. Tariffs removed, Indonesia now has the opportunity to reassess the agreement. The decision rests solely with Indonesia. The question is whether the Prabowo administration will prioritize energy self-sufficiency and invest in its vast renewable energy potential, or continue to cater to the interests of fossil fuel companies and foreign leaders.

The True Cost of the Deal

The cost of this trade deal extends beyond economic considerations. Indonesia is particularly vulnerable to the impacts of climate change, and the continued reliance on fossil fuels exacerbates this risk. The economic costs of climate-related disasters can be quantified, but the loss of lives and communities is immeasurable. For Indonesia, the cost of continuing to pay for its own destruction may be too high.