INDEF urges diversification of petrochemical raw materials to maintain contribution
Jakarta (ANTARA) - The Institute for Development of Economics and Finance (INDEF) has highlighted the need for diversification of raw materials in the petrochemical industry, given the potential supply barriers due to conflicts in the Middle East, in order to maintain the sector’s contribution to the economy.
INDEF Executive Director Esther Sri Astuti, in a statement confirmed in Jakarta on Friday, said that disruptions in the supply of raw materials, such as naphtha, would directly pressure the production capacity of the petrochemical industry and trigger chain effects to various other sectors.
“When raw materials are disrupted, production volume will certainly be affected. The impact is not only in the petrochemical sector but also spreads to other industries that depend on that supply,” she stated.
As an upstream sector, the petrochemical industry supplies raw materials for various manufacturing industries, which would directly disrupt broad production activities.
That output decline, according to her, would ultimately have direct implications for national economic performance.
The government, she continued, needs to consider negotiation steps, especially since Indonesia has fairly good relations with countries in the Middle East.
“This is important because around 70 percent of our naphtha supply comes from that region,” she said.
This high dependence is seen as a structural weakness that needs to be anticipated immediately, especially if the conflict persists over a long period.
In addition to supply risks, she said pressure also comes from the price side, given that imbalances between supply and demand could drive up production costs.
She added that substituting naphtha raw materials is not easy to do in a short time, due to the complexity and specifications of the petrochemical industry.
On the other hand, she also noted that global pressures further impact the state’s fiscal position, particularly due to the surge in world oil prices exceeding assumptions in the State Revenue and Expenditure Budget (APBN).
To dampen broader impacts, Esther urged the government to provide incentives to industries, particularly strategic sectors like petrochemicals.
She also emphasised the importance of more productive budget allocations to maintain economic growth.
“Incentives are needed so that industries continue to operate. If there is a slowdown or even closure, the impact will spread to unemployment and people’s purchasing power,” she said.
Previously, the Ministry of Industry has endeavoured to include the petrochemical industry in the National Strategic Projects (PSN), given that this sector has a fundamental role as the main supplier of raw materials for plastics, synthetic fibres, synthetic rubber, functional chemicals, and various other industrial needs.
The Ministry of Industry is also strengthening national industrial resilience to anticipate potential impacts from the escalation of geopolitical conflicts between Iran, Israel, and the United States on the performance of manufacturing and the Indonesian economy.
As an important part of the processing industry, the chemical, pharmaceutical, and textile industry (IKFT), which includes petrochemicals, recorded positive growth throughout 2025 at 5.11 percent, an increase from the previous year which reached 4.21 percent.
That sector also contributed 3.87 percent to GDP, with the largest contribution coming from the chemical, pharmaceutical, and traditional medicine subsector at 1.83 percent.