These localized shortages are the visible edge of a broader macroeconomic shock. In early June, the Indonesian rupiah fell to a record low against the US dollar. This devaluation has accelerated inflation by driving up the cost of imported food and fuel, forcing the central bank to raise interest rates and increasing the burden of servicing foreign currency debt. While budget deficits and a weakening trade balance are often cited as primary drivers, the core of the crisis lies in Indonesia’s structural dependence on fossil fuels and the massive subsidies attached to them.
The Fiscal Weight of Subsidies
Fossil fuel consumption subsidies, which include budgeted losses for state-owned power and oil companies due to artificially low domestic prices, are projected to reach $23 billion this year. This figure represents approximately 10% of the national budget and 1.5% of GDP. The state also engages in cross-subsidization of domestic coal consumption, effectively forcing coal mining companies to sell at a discount to the national power company and other domestic consumers. This mechanism transfers roughly $6 billion annually from the mining sector to domestic consumers. Had this income transfer been achieved through taxing coal exports instead, government fiscal revenue would have been boosted by 4%.
The pressure on the currency is compounded by a deteriorating trade balance. The oil and gas import bill jumped 83% year-on-year in April, just as export values fell. Consequently, Indonesia’s usual trade surplus vanished, plummeting to its weakest point since 2020. Net oil and gas imports, which had been rising steadily for years due to increasing consumption and declining domestic production, hit an all-time high in January 2026. Following the onset of the Hormuz crisis, net imports set new records for both April and May. The spike in global oil prices has proven particularly damaging for Indonesia, a net importer of hydrocarbons, as it erodes the fiscal space required to manage the economy.
Grid Strain and Policy Response
The energy system is under parallel stress. Rolling blackouts have forced the government to temporarily suspend some coal exports to ensure sufficient fuel for domestic power generation. This decision highlights a structural vulnerability in Indonesia’s grid, which remains heavily locked into subsidized coal. The share of clean, non-fossil power generation has barely increased over the past decade, leaving Indonesia lagging well below the ASEAN average and other major Asian economies. Unlike peers who reduced domestic gas usage after the 2021-22 global gas crisis, Indonesia increased its gas consumption and has massive plans for gas-fired power plants over the next decade. As a result, fossil fuels have filled the gap left by slow clean energy growth, making the grid highly sensitive to commodity price shocks.
The current crisis has, however, injected momentum into long-stalled transition efforts. President Prabowo’s ambitious 100GW solar initiative appears to have gained necessary political and financial push. Electrification is accelerating, offering a path to replace direct fossil fuel use in transport, industry, and households. Electric vehicle sales, previously held back by the price advantage of subsidized gasoline and diesel, are now rising sharply. While this shift was too late to avert the current currency and supply crisis, it provides a framework for future-proofing the energy sector.
Government responses have been mixed, balancing immediate stabilization measures like the coal export suspension and purchases of Russian oil against longer-term renewable investments. For Ramdoni and the thousands of drivers waiting at pumps across Sumatra, the immediate relief depends on the government’s ability to balance these competing priorities. The next critical development will be the effectiveness of the solar expansion and the potential recalibration of subsidy policies to align fiscal health with energy security.
