Indonesia’s Oil and Gas Dilemma: Regulatory Bottlenecks, Market Monopoly, and the Path to Reform

Diemas Sukma Hawkins

Chairman, Nusra Economic Council

Indonesia’s oil and gas sector is at a crossroads. Once a net exporter, the country now struggles with rising domestic energy demand, declining reserves, and an uneven playing field that favors the state-owned Pertamina at the expense of private competitors. The consequences are visible: fuel shortages, strained supply chains, and growing consumer frustration with a sector that seems unable to adapt to modern demands.

Indonesia’s Oil and Gas Dilemma: Regulatory Bottlenecks, Market Monopoly, and the Path to Reform

Shell and BP, two of the largest international oil companies operating in Indonesia, have recently faced difficulties securing supplies due to tight import restrictions. Jakarta has restricted imports of crude and refined petroleum products, citing the need to protect its balance of payments and support Pertamina’s refineries. This policy, however, has left private players scrambling for alternatives.

The situation is further complicated by external pressures. The United States has pushed Indonesia to purchase more of its oil and gas exports, a demand that limits the flexibility of energy firms operating domestically. Instead of fostering open competition, the combination of restrictive import rules and geopolitical pressure has tilted the market in favor of state-aligned procurement.

A Market Shaped by Regulation and Monopoly in Everything but Name

Indonesia’s Oil and Gas Law and subsequent regulations have entrenched Pertamina’s position as the dominant player in the sector. Private companies may explore and produce, but when it comes to refining, imports, and distribution, Pertamina effectively holds a monopoly. This creates inefficiencies in pricing and supply, discourages foreign investment, and restricts the ability of firms like Shell and BP to operate independently.

The result is higher costs for consumers. Indonesians have already borne the brunt of fuel price hikes and uneven distribution, particularly in regions outside Java. Trust in Pertamina is low, following years of corruption scandals and mismanagement that have tainted its reputation. Consumers are increasingly skeptical of a system that forces them to rely on a monopoly they do not fully trust.

How to Break the Deadlock

To address these challenges, Indonesia needs a comprehensive rethink of its oil and gas governance. Three measures stand out:

1. Loosen Import Restrictions

   • Allow private companies to directly import crude and refined products to complement Pertamina’s supply chain.

   • Implement transparent quotas and licensing to prevent abuse while maintaining oversight.

   • This would reduce shortages, introduce price competition, and increase supply resilience.

2. Encourage Partnerships and Joint Ventures

   • Indonesia’s eastern regions, including Papua and Maluku, remain underexplored but hold significant reserves.

   • Joint ventures between Pertamina and private firms such as Shell and BP could unlock these opportunities, sharing risk and technology while securing investment flows.

   • Local governments and communities could benefit through job creation, royalties, and infrastructure development.

3. Regulatory Reform for a Level Playing Field

   • Streamline approval processes for exploration and refining projects.

   • Revise policies that give Pertamina exclusive distribution rights.

   • Establish an independent regulator to oversee the sector, ensuring accountability and competitive practices.

Rebuilding Trust and Profitability at Pertamina

For Pertamina itself, reform is equally urgent. Its long-term profitability and credibility hinge on regaining public trust and working more effectively with private players. Key steps include:

• Governance and Transparency: Commit to international auditing standards and disclose financial and operational data to rebuild credibility.

• Refinery Modernization: Upgrade facilities to produce higher-quality fuels that meet international demand, making Shell and BP more willing to source from Pertamina.

• Strategic Partnerships: Position itself not as a gatekeeper but as a collaborator, offering joint ventures that attract investment while diversifying revenue streams.

• Customer Focus: Improve service delivery in retail fuel distribution, particularly in under-served regions, to reduce consumer resentment.

The Road Ahead

Indonesia’s oil and gas sector is too important to be stifled by protectionism and monopolistic practices. By loosening import restrictions, encouraging competition, and fostering partnerships with private companies, Indonesia can secure energy supplies, stabilize prices, and attract the capital it urgently needs. Pertamina, meanwhile, must reinvent itself from a monopoly marked by scandals into a modern energy company trusted by consumers and valued by partners.

The energy transition will inevitably reshape Indonesia’s economy, but unless the sector’s governance improves, both consumers and investors will remain trapped in a system that favors the few at the expense of the many. Reform is not only desirable—it is essential for energy security, economic resilience, and public trust.

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