Energy analysts have mixed views about oil price movements. Some see the current price increases as a temporary phenomenon. But most analysts agree oil prices will remain over US$80 for the rest of the year, and may even climb to almost $100 next year as China and India continue to enjoy robust growth, further fueling their seemingly unquenchable demand for oil.
In the meantime, Middle Eastern politics make the future of the oil market uncertain.
Whatever happens, the blunt reality businesses and people will have to live with is that the era of costly oil is here to stay. Costlier oil will make hydrocarbon-based products such as plastics and synthetic fibers much dearer.
However, the Indonesian government seems unwilling to learn any lessons from economic and political instability triggered in the past by bouts of oil price volatility.
The government's energy diversification program is poorly designed and has made no significant progress, and there is nothing that could be called a comprehensive energy conservation program.
The government just seems to be hoping oil prices will eventually decrease to around $60 per barrel - the average price used as the basis for setting budget appropriations for fuel subsidies this year and next. Then it is again back to business as usual.
The central government at one point considered slapping punitively high luxury sales taxes on big-capacity passenger cars. Glad to note it was done last week for cars imported in completely-built up form, despite the protests and criticisms from potential automobile investors who complained that the fiscal environment in other countries such as Thailand and Vietnam is much more conducive for automobile manufacture.
Some local administrations planned to impose progressive car registration taxes on people owning more than one car. But nothing more was heard of these plans, which were announced during a bout of skyrocketing oil prices.
Such fiscal measures, if fully enforced, would help dampen demand for passenger cars and would consequently help reduce fuel consumption, because our transportation sector still depends almost entirely on oil fuel.
The country enacted an energy law last July that could be used as a powerful legislative basis to introduce effective energy diversification and fuel efficiency programs, in coordination with a comprehensive energy conservation program.
Many countries have enacted and implemented energy conservation laws that stipulate not only compulsory conservation measures, but also fiscal and financial incentives for factories and buildings making investments in energy conservation. They have proved successful in reducing dependence on fossil fuels.
But Indonesia has not followed up its energy law with the necessary implementation regulations to enforce energy diversification, efficiency and conservation programs with the support of fiscal and financial incentives.
The government apparently does not yet feel the urgency of such measures, still hoping the oil price increases will be temporary.
A compulsory energy conservation program would be more effective in improving efficiency in energy use and in diversifying energy away from fossil fuels into renewable sources.
The law can be enforced to oblige industrial companies to conduct in-house management of energy efficiency through maintenance and housekeeping measures, replacement of selected equipment or modification of entire manufacturing processes.
All these measures will be possible only with a conducive environment and with the support of fiscal measures and financial incentives such as bank loans with easier terms.
Governments have at their disposal a variety of instruments such as tax credits and subsidized or low-interest loans through which energy efficiency improvements can be stimulated.
The law thus allows for the integration of energy diversification, efficiency and conservation into a comprehensive energy development program, complete with fiscal and financial incentives for the development of renewable energy sources.
The energy legislation governs not only conventional energy such as oil, gas and coal, but also emphasizes the development of renewable energy such as biofuels and geothermal power.
The steep oil price rises over the past few months should force the government to implement an integrated energy conservation, efficiency and diversification program under a conducive fiscal and regulatory environment, otherwise we will remain vulnerable to economic and political turbulence in line with international oil volatility.
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