India and Indonesia Renew Economic Ties Fueled by Energy Needs

A thousand years ago, the Chola Kingdom of India dominated Southeast Asian seas, forging lasting trade and cultural connections with Indonesia. This historical relationship laid the foundation for shared prosperity that endured for centuries. Today, both nations are collaborating again, playing significant roles on the global stage.

India is now the world’s most populous country, with Indonesia ranking fourth. Together, they comprise 1.8 billion individuals focused on basic survival and economic growth. Both countries are expanding their manufacturing capabilities, catering to a burgeoning middle class demanding electricity, refined fuels, petrochemicals, steel, freight, and industrial heat. To meet these needs, they turn to coal, oil, gas, and nuclear power—reliable and affordable energy sources that remain crucial for the future.

The importance of fossil fuels was highlighted when India’s Prime Minister Narendra Modi and Indonesia’s President Prabowo Subianto met in Jakarta on July 7 to strengthen economic ties. At the forefront of their discussions was the significant expansion of energy trade, with India requesting more Indonesian coal to support its power grid. This partnership marks a logical step in their rapidly growing industrial relationship, with bilateral trade increasing from under $5 billion in 2005 to nearly $25 billion.

India is Indonesia’s second-largest coal buyer and the leading importer of Indonesian crude palm oil, also sourcing minerals, rubber, hydrocarbons, pulp, and paper. In exchange, India exports refined petroleum products, vehicles, telecom equipment, steel products, and agricultural goods. A recent joint venture between the Steel Authority of India and Indonesia’s Krakatau Steel for stainless steel production underscores their collaboration. Both nations’ steel industries heavily rely on coal, with India and Indonesia depending on it for 90% and 80% of their production, respectively.

Indonesian Energy and Mineral Resources Minister Bahlil Lahadalia stated that India seeks involvement in Indonesia’s oil and gas sector. Indonesia, once a top gas producer, has recently granted exploration contracts to global oil companies. The governments also discussed working together on peaceful nuclear projects. Nuclear energy, like fossil fuels, offers reliable electricity that solar and wind cannot.

Additional agreements were signed on critical minerals, supply chain technology, medical product regulation, disaster management, telecommunications, and agriculture.

Indonesia’s recent rolling blackouts in Sumatra and Java revealed weaknesses in its electricity system, with state utility PLN attributing Java’s outages to limited coal supplies. Building a manufacturing hub solely on solar and wind is impractical due to their weather dependency. Recognizing this, Indonesia has postponed the closure of coal-fired power plants, including the Cirebon-1 plant originally set to retire in 2025.

India shares similar challenges, with coal accounting for nearly 80% of its power. After severe weather affected hydroelectric facilities, India increased coal usage. This reliance is expected to persist beyond 2047. In a move underscoring energy independence, India withdrew its bid to host the 2028 United Nations climate summit, emphasizing its commitment to securing affordable energy.

By prioritizing energy sources essential for their populations’ well-being, India and Indonesia challenge the current environmental narrative. Together, representing over one-fifth of the global population, they focus on meeting energy demands to enhance their citizens’ quality of life.

Vijay Jayaraj is a Science and Research Associate at the CO2 Coalition. He holds an M.S. in environmental sciences from the University of East Anglia and a postgraduate degree in energy management from Robert Gordon University in the U.K. Previously, he was a research associate with the Changing Oceans Research Unit at the University of British Columbia.