Energy Costs in Indonesia if Brent Oil Hits $80 — Impact on Low-Income Households

A rise in global Brent crude oil prices to $80 per barrel directly translates into higher energy costs within Indonesia. For low-income households, particularly those earning under €1,500 ($1,620 USD) monthly, this surge can significantly strain budgets, impacting daily necessities and long-term financial stability.

How $80 Brent Oil Transmits to Indonesian Household Costs

Indonesia is a net oil importer. When Brent crude trades at $80 per barrel, the government's cost of importing raw oil or refined fuels like gasoline and diesel increases directly. This higher import cost has a cascading effect:

1. Fuel Subsidies Pressure: Indonesia maintains fuel subsidies (e.g., for Pertalite gasoline and subsidized diesel). At $80/barrel Brent, the gap between the international market price and the subsidized retail price widens. The government faces a dilemma: increase the subsidy burden on the state budget, or reduce subsidies and allow retail prices to rise. Historically, subsidy adjustments often lead to retail price increases for consumers. For instance, in September 2022, a similar price surge led to an average 30% increase in subsidized fuel prices. If Pertalite's unsubsidized cost reaches IDR 12,000 per liter at $80 Brent, maintaining the current IDR 10,000 retail price means the government absorbs IDR 2,000 per liter. This is unsustainable for prolonged periods.

2. Electricity Generation: Over 50% of Indonesia's electricity is generated from coal, but gas and diesel also play a role, particularly in remote areas or during peak demand. Higher oil prices can elevate the cost of diesel for generators, indirectly affecting electricity tariffs or increasing state electricity company PLN's operational costs, which could eventually be passed on to consumers.

3. Logistics and Transportation: Nearly all goods transportation in Indonesia relies on diesel fuel. Increased fuel costs for trucks, buses, and public transport (angkot) operators mean higher operating expenses. These additional costs are then passed on to consumers through higher prices for food, essential goods, and public transport fares. For low-income households, who spend a larger proportion of their income on these necessities, this translates to reduced purchasing power.

Indonesia's Specific Energy Landscape at $80 Brent

Indonesia's domestic refined product prices are heavily influenced by the government's subsidy policies. Pertamina, the state-owned oil and gas company, manages fuel distribution. For low-income households, subsidized fuels like Pertalite (gasoline) and subsidized diesel are critical.

Historically, Indonesian fuel prices are lower than market rates due to subsidies. At $80 Brent, the subsidy burden could become immense. For example, if the crude price component for Pertalite rises by 15% to reflect $80 Brent, and the government decides to pass on 50% of this increase to consumers to manage its budget, a liter of Pertalite could increase from IDR 10,000 to approximately IDR 10,750. This seemingly small increase aggregates significantly over a month. Non-subsidized fuels like Pertamax will see more direct price increases, further incentivizing shifts to cheaper subsidized options, which increases pressure on the subsidy budget.

Concrete Cost Impact for Low-Income Households

Consider a low-income household in Indonesia earning IDR 4,000,000 (approximately €230/$250 USD) per month, with daily expenses averaging IDR 130,000.

• Transportation: Many low-income individuals rely on motorcycles for commuting or small businesses (e.g., ojek drivers). A motorcycle consuming 3 liters of Pertalite daily, 25 days a month, uses 75 liters. At the current subsidized price of IDR 10,000/liter, this is IDR 750,000. If Brent hits $80 and Pertalite prices increase by 7.5% to IDR 10,750 (a conservative estimate reflecting partial subsidy removal), the monthly fuel cost rises to IDR 806,250. This is an additional IDR 56,250 (€3.25/$3.50) per month, which represents 1.4% of their total income.
• Food & Essentials: Increased diesel costs for logistics mean higher prices for basic food items. For a household spending IDR 1,500,000 on food monthly, a conservative 2% price increase due to transport costs would add IDR 30,000 (€1.70/$1.85) to their monthly food bill.
• Public Transport: If this household uses public transport, fares for angkot or intercity buses will likely increase by 5-10%. A daily IDR 20,000 commute (IDR 400,000/month) could rise to IDR 420,000-440,000, adding IDR 20,000-40,000 (€1.15-€2.30/$1.25-$2.50).

Collectively, these increases could add IDR 106,250 - IDR 126,250 (€6.15-€7.30/$6.50-$7.80) to a low-income household's monthly expenses. While seemingly modest, this sum represents 2.6% to 3.1% of their total monthly income, reducing discretionary spending or forcing cuts in other essential areas like education or healthcare.

Recommendations for Low-Income Households

1. Optimize Transportation: Consolidate trips to reduce fuel consumption. Explore walking or cycling for short distances. If using public transport, research routes that minimize transfers.

2. Energy Efficiency at Home: Unplug electronics when not in use. Use natural light. While electricity tariffs may not rise immediately, reducing consumption always helps.

3. Budgeting and Bulk Buying: Plan grocery purchases to minimize trips and potentially benefit from slightly lower prices on larger quantities if feasible. Focus on seasonal, locally sourced produce, which might be less affected by fuel-driven logistics costs.

4. Explore Government Support: Stay informed about potential government assistance programs (e.g., Bantuan Langsung Tunai - BLT) designed to alleviate the impact of fuel price hikes. These programs offer direct cash transfers to eligible low-income families.

In conclusion, Brent oil at $80 per barrel will undoubtedly increase the cost of living for Indonesian low-income households. While the government may absorb some of the shock through subsidies, a portion of the increased costs will inevitably reach consumers via higher fuel prices and cascading effects on goods and services. Proactive budgeting and energy-saving measures are crucial to mitigate these impacts.

Try the PriceShock simulator at https://priceshock.app to model your own scenario.