Indonesia Rejoins OPEC as its 13th Member

After defending the interests of oil-exporting nations for five decades, OPEC has made a surprising choice with its newest member: a country that consumes about twice as much crude as it pumps.

Indonesia will rejoin the Organization of Petroleum Exporting Countries as its 13th nation next month, almost seven years after suspending its membership. The country says that as OPEC’s only Asian constituent it will provide a vital link to the region where demand is growing fastest. Still, saddled with an oil-import bill of about $13 billion last year, Indonesia makes an unlikely addition to the exporters’ club.

Official explanations that paint Indonesia as a conduit between producers and consumers don’t fully illuminate a move that’s fundamentally at odds with OPEC’s mission: why allow a country that will benefit from lower prices into a group set up to underpin prices? 

Citigroup says it’s another sign OPEC has abandoned its role in defending prices after last year choosing to maximize its market share in the face of a global glut. OPEC hasn’t announced any specific market measures since 2008.

Odd Decision

Indonesia contends its return to the group will be mutually beneficial. As a country that both consumes and produces, it can provide OPEC with a bridge between the two sides of the oil market, Energy Minister Sudirman Said said in June. 

Indonesia believes the move will both ensure access to crude supplies - it’s already in talks to buy Iranian crude once international sanctions are lifted - and attract investment to revive its energy sector, such as a project to build a refinery with Saudi Arabia.

Indonesia is projected to produce 850,000 barrels a day this year, according to a Nov. 13 report from the International Energy Agency. That’s about 789,000 less than it consumed last year. Only Libya, Ecuador and Qatar produce less among OPEC’s member states. 

In October 2014, Indonesia gave up on a target of restoring output to 1 million barrels a day. Crude output has dropped more than 50 percent since the mid-1990s as shifting regulations and complicated permits deter investments in new fields.