Indonesia mulls Opec withdrawal

Opec member Indonesia is considering leaving the oil cartel to concentrate on domestic production, the country’s president has said.

Levels of oil production from its ageing wells are declining, making the country a net importer of oil when crude prices are at record levels.

It has had to cut subsidies on domestic fuel to avoid a massive budget deficit.

Some analysts have said the oil exporting group’s reluctance to boost production has kept prices high.

Oil analyst Kurtubi said that – as an oil importer – Indonesia’s concerns clashed with those of other Opec members.

Indonesia spends billions of dollars every year subsidising fuel for its citzens – which is a huge drain on its economic resources and on the government’s coffers (Karishma Vaswani, BBC News correspondent)

“[Indonesia's] interests now are different. We want oil prices to come down as high oil prices put pressure on our budget. But exporters want a reasonable or even high price since it is their main source of revenue.”

Declining investment in Indonesia’s oil infrastructure has seen its output drop below a million barrels a day from about 1.5m in the mid-1990s.

President Susilo Bambang Yudhoyono said the government had begun talks as to “whether we should continue to stay with Opec or withdraw our membership”.

Protests

The Indonesian government announced on Monday that it would have to cut subsidies on fuel to avoid a massive budget deficit.

The move led to a demonstration against the rising price of fuel in Makassar on Indonesia’s Sulawesi island, according to one media report.

The decision to leave Opec will be a tough one for Indonesia, says Karishma Vaswani, one of the BBC’s Asia business correpondents.

But it may be necessary because of the economic and political conditions the country is facing right now, she adds.

It spends billions of dollars every year subsidising fuel for its citzens, which is a huge drain on its economic resources and on the government’s coffers, our correspondent points out.

However, raising fuel prices is a politically unpopular move, so it is choosing instead to focus its resources on investing in its domestic oil and gas production, she adds.

When Indonesia has had to raise domestic fuel prices in the past, this has led to big protests against the government, which faces an election in 2009.

Indonesia is South East Asia’s only Opec representative and has been a member since 1962, two years after it was founded.

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