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top economic minister has warned that an ongoing oil-price slump might not only bring the benefits of cheap oil to Indonesia, but could also lead to harmful effects from shrinking revenue.

Lower oil prices would shrink burdensome fuel subsidies, but an oil price of below US$60 per barrel would not be economical for Indonesia as the loss in state revenue from the oil sector might exceed the economic benefits, according to Finance Minister Bambang Brodjonegoro.

He noted that there had been an '€œoil-price war'€ between Saudi Arabia and the US, with the former apparently deliberately allowing oil prices to decline to hurt newly operating shale-oil producers in the world'€™s largest economy.

'€œThis is as if we are being put in an advantageous position, but actually the decline in our revenues will be steep,'€ Bambang said recently.

While countries such as Saudi Arabia might still survive in an economic environment where oil prices drop below $60 per barrel due to the country'€™s low production costs, extracting oil in Indonesia is actually more expensive than in Gulf States, the minister explained.

Despite its status as a net oil importer, Indonesia actually still exports some of its oil overseas.

Indonesia'€™s petroleum exports amounted to 455,000 barrels per day last year, according to US Energy Information and Administration, which quoted the Analysis of Petroleum Exports (APEX). The country'€™s crude oil imports stood at 506,000 barrels per day.

Falling oil prices have also discouraged new investments in Indonesia'€™s oil and gas industry.

Companies working on oil and gas blocks in Indonesia are cutting back on investment next year, as their combined work plan and budget is approximately 13 percent lower than this year'€™s forecast of $25.6 billion due to lower oil prices, which might also fall short of target, according to figures from the Upstream Oil and Gas Regulatory Special Task Force (SKKMigas).

But the benefits of the oil-price slump also vary. In the 2015 state budget, the government assumes the Indonesian Crude Price (ICP) will trade at $105 per barrel. The World Bank estimated that the ICP might only hover at $85 throughout next year, possibly resulting in savings for the budget.

Brent crude, the international oil-price benchmark, fell below $65 per barrel this month, the lowest level in more than five years, after Saudi Arabia'€™s oil minister stated that the kingdom had no intention to cut its supply despite a global glut from the Organization of the Petroleum Exporting Countries (OPEC) and additional supply from the recently booming US shale-oil industry.

Premium gasoline is no longer subsidized in Indonesia if the Brent falls below $66 per barrel, Morgan Stanley analysts led by Deyi Tan wrote in a note released recently.

Last month, President Joko '€œJokowi'€ Widodo hiked the price of Premium fuel by 30 percent to Rp 8,500 per liter to reduce fuel subsidies, which amount to Rp 276 trillion ($22.3 billion) in state-budget allocation next year.

Rating agency Moody'€™s Investors Service estimated that, if the global oil price averages at $60 per barrel throughout next year, Indonesia'€™s annual current-account deficit '€” the major worry among foreign investors '€” will shrink to 1.9 percent of gross domestic
product (GDP).

That compares with a predicted $25-26 billion current-account deficit, or around 3 percent of GDP, which the country might post throughout 2014, according to estimates of Bank Indonesia (BI) director for monetary policy Doddy Zulverdi.

'€œWe consider Indonesia Asia'€™s biggest winner from lower world oil prices,'€ said Tim Condon, the head of Asian research with Dutch-based ING Bank.

'€œWe expect the reduced likelihood of a budget blowout from fuel subsidies to attract confidence-sensitive capital and drive up government bond prices,'€ said Condon, who forecast the yield of 10-year rupiah bonds to rally to 7 percent by the end of 2015 due to the lower-than-expected fiscal and current-account deficits.

'€” JP/Satria Sambijantoro