Jakarta. Indonesia’s palm oil sector could cushion the impact of Middle East tensions, as its near-100% domestic content and inelastic demand give exporters room to redirect shipments and sustain volumes despite disruptions.

Professor at Bogor Agricultural University (IPB) Bayu Krisnamurthi said Indonesia is in a strong position during global trade shocks because palm oil relies almost entirely on local inputs, while buyers have limited short-term alternatives even when prices rise or logistics are disrupted.

“In the context of palm oil, in a situation like this [the Middle East war], our strategy should be to increase exports. Indonesia can weather the crisis well if we expand exports,” he said.

Palm oil has long acted as a buffer for Indonesia’s trade balance. In 2025, the commodity contributed $41 billion out of $60 billion in non-oil and gas exports, roughly two-thirds, underscoring its role as a key stabilizer during periods of external stress.

Industry estimates suggest up to 30% of exports, or around 10 million tons, could face disruptions due to the conflict, particularly to markets in the Middle East, Africa, and Europe. However, the remaining 70% of shipments remain unaffected and could be redirected or expanded to alternative markets such as China and Southeast Asia.

“Even if around 30% is affected, exporters can still ship because it is very difficult for importing countries to switch in the short term. Costs may rise, but demand remains,” Bayu said, adding that higher costs would likely be absorbed by consumers.

Hadi Sugeng confirmed that exports are continuing despite disruptions, though logistics costs have surged.

“If conditions persist, exports can continue, but there will be additional costs, our estimates suggest around a 50% increase. Hopefully, the conflict ends soon so these costs can ease,” he said.

He added that Indonesia cannot simply push buyers to increase purchases, as demand depends on each country’s economic growth and access to alternative vegetable oils. “For now, the focus is on maintaining engagement with existing markets while exploring new ones,” Hadi said.

Meanwhile, Eddy Martono warned that exporters are more concerned about the planned 50% export proceeds retention (DHE SDA) policy than the recent hike in export levy to 12.5%.

“The levy increase is manageable. What concerns us is the 50% retention of export proceeds for palm oil,” he said.

Indonesia requires exporters of natural resources to retain a portion of their foreign exchange earnings, known as DHE SDA, onshore for a set period. The policy is aimed at strengthening domestic liquidity and supporting the rupiah, but industry players say higher retention thresholds could tighten cash flow and raise financing costs, particularly for smaller exporters.

He cautioned that the policy could raise financing costs and weigh on smaller exporters, particularly those serving African markets. “With 50% of foreign exchange held domestically, exporters will need additional financing, which adds costs. If exports decline, the policy should be reviewed,” Eddy added.

According to Gapki data, Indonesia exported 32.34 million tons of palm oil in 2025, up 9.51% from the previous year, with notable increases to Africa, China, Malaysia, Bangladesh, and Pakistan. Export value reached $35.87 billion, up 29.23% year-on-year.

End-2025 stockpiles stood at 2.07 million tons, down nearly 20% from a year earlier and well below the typical level of around 4 million tons, indicating relatively tight supply conditions.