Energy Transition under Energy Security Concerns

In February 2026 war broke out in the Middle East and the Strait of Hormuz closed. Indonesia was not a party to it, yet the shock reached its budget and its households within weeks. This issue adapts Agus P. Sari’s remarks at COP31 in Antalya on how energy security should shape the energy transition, drawing on a Landscape Advisory model of the oil shock passing through Indonesia’s fixed fuel prices.

Indonesia imports most of its liquid fuel: $32.77 billion of oil and gas in 2025, about 38 percent of it from the Middle East. Much of its gasoline and diesel is refined in Singapore, so a disruption in the Gulf also arrives through a neighbor’s refineries.

At $100 a barrel, close to what Indonesia lived through in mid-2026, the subsidy bill rises by about Rp270 trillion because fuel, LPG and electricity prices are fixed. The budget deficit reaches 3.4 percent of GDP, above the 3 percent legal ceiling, and household purchasing power falls by about 1 percent. At $150 the deficit reaches 4.7 percent.

In the model the rupiah and inflation settle within months, but the budget keeps getting worse: a larger deficit slows growth, and slower growth widens the deficit again. The lasting fix is to import less fuel.

The first is biofuel. Diesel at the pump has been a 50 percent palm biodiesel blend (B50) since July 2026, which cuts diesel imports directly. It also raises demand for palm oil, and new plantations can push into forests and peat; this year fires burned nearly two million hectares through September. Biofuel needs strict safeguards that keep feedstock out of forests and peat.

The second is electricity. Indonesia still runs about 5.6 GW of diesel and oil-fired capacity, much of it on remote islands. Solar with batteries replaces that imported fuel with a domestic resource, lowering the subsidy bill, the import bill and pressure on the rupiah, which makes dedieselization energy security policy as much as climate policy. The government’s 100 GW solar initiative, with 80 GW planned as village systems across some 80,000 villages, gives the shift its scale. Diesel-dependent islands should be first in line.

Village solar needs a distribution network that works as an open platform, with clear rules for connection, metering and settlement. Transmission should run as a neutral, regulated platform, and new generation should be procured competitively, with the state in control through rules and oversight. Indonesia’s grids are still semi-separate islands: Sulawesi carries a reserve margin of 71 percent, while Maluku, Papua and Nusa Tenggara carry about 18 percent.

The first bottleneck is transparency. The cost of diesel power on each island is not public, so it is hard to show where solar is already cheaper. Publishing those costs, separating accounts by function and region and showing subsidies openly would move the debate from ideology to numbers, and let money that now buys diesel pay for clean capacity.

The ASEAN Power Grid has nine of its 18 priority links in operation, yet cross-border trade covers only about 0.5 percent of regional power demand; Ember estimates each year of delay costs the region $2.6 billion. Trust is fragile. In March 2026 China halted refined fuel exports and Thailand banned fuel exports, and Indonesia has made similar choices, from its coal export ban in January 2022 to a cut in pipeline gas to Singapore in October 2026.

A solar farm has no fuel to embargo, but its panels, batteries and inverters come from very few places. Southeast Asian countries can pool demand for village-scale systems, agree common standards, recognize each other’s certification and spread manufacturing. ASEAN’s petroleum security agreement could extend to electricity and clean energy equipment, with long-term contracts, advance notice before any cut and shared reserves.

The issue recommends that NDCs and implementation plans treat replacing imported fuel as a climate commitment and an energy security commitment together: a dated target to replace diesel and imported fuel in power, reported next to the emissions target; a bankable project pipeline for the 100 GW solar initiative, backed by power market reform and transparent subsidies; safeguards that keep biofuel feedstock out of forests and peat; and regional commitments on grids, equipment and trade rules.

“Southeast Asia Energy Transition under Energy Security Concerns,” Tuesday, November 10, 2026, at 14:00, COP31 Antalya. Co-organized by the Center for Global Sustainability of the University of Maryland, the Institute for Essential Services Reform, the Indonesian Climate and Growth Dialogue, and The Landscape Group.