Indonesia's gas export cuts: A costly blow to trust and regional leadership

Indonesia has announced it will reduce natural gas exports to Singapore starting October 24, a move that could damage the country's reputation and influence in the region. The decision highlights Indonesia's struggle to balance domestic energy security with its role as a reliable economic partner and regional leader.

Indonesia needs dependable, cost-effective gas for power generation and manufacturing, but restricting exports could strengthen or weaken its energy security in the long run. The timing is particularly poor, as business confidence is already low. Recent surveys show that only 32.4% of firms plan to invest in the next six months, down from 47.1% in late 2025, and 40% have no investment plans at all.

Government policies and programs are the primary concerns for businesses. Investment decisions depend not only on expected profits but also on confidence in the predictability of policies. When uncertainty rises, investors demand higher returns, delay commitments, or seek opportunities elsewhere.

While the direct economic impact of the export cut may be limited, its signaling effect could be significant. Indonesia should clarify whether it negotiated the reductions within existing contractual provisions or imposed them unilaterally. The country is also preparing a new oil and gas law to improve legal certainty, strengthen governance, and attract investment. This reform is long overdue, as upstream investment is unlike ordinary manufacturing.

Investors commit large sums before knowing if reserves are commercially recoverable, then spend billions more on development. Returns may take a decade or longer, and investors judge projects based on cash flows over their full commercial lives. Indonesia competes for this capital with other producing countries, and geology alone will not secure it.