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A worker refuels a truck at a fuel storage depot in Jakarta, Indonesia.

Indonesia to Drop Out of OPEC

May 28, 2008 05:43 PM
by Anne Szustek
The only Southeast Asian member of the 13-country bloc of petroleum producers is withdrawing from the group because the nation has become a net oil importer.

30-Second Summary

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It seems to make little sense for a country whose trade balance in oil has been in deficit for over two years to remain a member of a group called the “Organization of Petroleum Exporting Countries.”

Indonesian Minister for Energy and Mineral Resources Purnomo Yusgiantoro agrees, and announced Wednesday that the country would not renew its membership in OPEC at the end of the year, when its current term is set to run out. Purnomo noted that Indonesia would like to withdraw earlier but could not make up the difference in lost membership fees, which amount to some $3.1 million a year.

Conflict over price adjustments also played into Indonesia’s decision to disaffiliate from OPEC. Indonesia “would like world oil prices to fall while OPEC’s 12 other members would like prices to remain high,” said Purnomo. The nation of 235 million spends billions of dollars on subsidies, putting pressure on government coffers—a situation only exacerbated by high oil prices, which OPEC has little incentive to lower.

Dwindling foreign direct investment in petroleum exploration in Indonesia has played into the country’s lower oil production—which, after peaking in 1977, has been in decline since 1995. Bloomberg.com writes that squabbles with ExxonMobil over oilfield exploration may have factored in, and CNN Money reports that “corruption and a weak legal system … make oil companies wary of doing business in the country.” A 2004 oil and gas law also crimped investment.

Indonesia’s refining capacity is shrinking as well—another cut into the country’s fuel supplies, leaving it to rely on imports for one-third of national demand.

Headline Link: ‘Indonesia Pulls Out of OPEC’

Video: ‘U.K. Daily View’

Background: OPEC

Opinion & Analysis: Indonesia’s energy needs run counter to OPEC interests

Related Topic: ‘Brazil Expresses Interest in OPEC Membership’

Reference: Web Guide to U.S. International Relations

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