Indonesia Explores LPG as Alternative Feedstock for Plastic Production Amid Middle East Conflict and Rising Naphtha Costs

The Indonesian government is officially exploring a strategic shift in its industrial feedstock procurement, eyeing liquefied petroleum gas (LPG) as a viable substitute for naphtha in the production of plastics. This move comes as a direct response to the escalating geopolitical tensions in the Middle East, which have significantly disrupted global supply chains and sent the prices of petroleum-based raw materials soaring. Minister of Trade Budi Santoso confirmed that the government is currently evaluating alternative sourcing and technological transitions to ensure that the domestic petrochemical and manufacturing industries remain resilient despite the volatility of the international energy market.

For decades, Indonesia’s petrochemical sector has heavily relied on naphtha—a flammable liquid hydrocarbon mixture—imported primarily from the Middle East. However, the prolonged conflict in the region has created a precarious environment for maritime logistics, particularly through the Strait of Hormuz, a critical chokepoint for global oil and gas shipments. The resulting increase in insurance premiums for cargo, coupled with fluctuating crude oil prices, has forced the Indonesian government to seek more stable and cost-effective alternatives to protect the domestic economy from imported inflation.

The Impact of Geopolitical Instability on Petrochemical Feedstock

The Middle East remains the world’s primary hub for oil and gas exports, but its historical instability frequently leads to price shocks in the global market. Naphtha, which is derived from the distillation of crude oil, is the primary feedstock for steam crackers in Asia, including Indonesia. These crackers produce ethylene and propylene, the fundamental building blocks for various types of plastics such as polyethylene (PE) and polypropylene (PP).

Minister Budi Santoso noted that the disruption is not merely a matter of price but also of logistical certainty. When traditional shipping routes are threatened by conflict, the delivery of raw materials becomes delayed, leading to production bottlenecks in Indonesian factories. To mitigate this, the Ministry of Trade has already begun diversifying its naphtha suppliers. In a statement delivered at the JIEXPO Kemayoran in Jakarta, the Minister highlighted that the government has secured alternative shipments from India, Africa, and the United States.

"We have found alternatives from India, Africa, and America. While these shipments are currently in transit, our domestic industries continue to operate. We are doing everything possible to ensure there is no stoppage in the production line," Minister Santoso stated. This diversification strategy is intended to reduce the "concentration risk" associated with over-dependence on a single geographic region for industrial inputs.

The Strategic Shift to LPG as a Naphtha Substitute

Beyond simply changing the geographical source of naphtha, the Indonesian government is looking toward a fundamental shift in the feedstock mix. The proposal to use LPG as a substitute for naphtha represents a significant technical and economic pivot. LPG, which consists primarily of propane and butane, can also be used in steam cracking processes to produce the same chemical precursors required for plastic manufacturing.

In many parts of the world, particularly in the United States and the Middle East itself, LPG is often used as a cheaper alternative to naphtha when natural gas prices are low. By exploring this transition, Indonesia aims to tap into different global supply pools. Specifically, the government is looking toward the Eurasian region, including countries in the orbit of the Russian Federation, to secure long-term LPG supplies.

"We are currently looking for LPG as it can replace naphtha. We are trying to source this from Eurasia, specifically from countries around Russia. We have already begun making diplomatic and commercial approaches," Minister Santoso explained. This move aligns with Indonesia’s broader foreign policy of maintaining diverse trade partnerships and seeking economic advantages in the Eurasian Economic Union (EAEU) market.

Chronology of the Supply Chain Crisis and Government Response

The current urgency regarding plastic raw materials can be traced back to a series of escalations in the Middle East that began affecting global shipping lanes in late 2023 and early 2024. As maritime security concerns grew, the cost of transporting goods through the Red Sea and the Gulf of Aden skyrocketed, impacting all oil-derived products.

By mid-2024, the Indonesian Ministry of Industry and the Ministry of Trade began receiving reports from domestic plastic manufacturers regarding the thinning margins caused by the high cost of imported naphtha. In response, a cross-ministerial task force was established to identify alternative feedstocks.

In late 2024 and early 2025, Indonesia intensified its trade negotiations with India and several African nations to bridge the immediate supply gap. However, as the conflict in the Middle East showed no signs of a permanent resolution, the focus shifted toward more permanent structural changes, leading to the current exploration of the LPG-for-plastic initiative. The announcement made in April 2026 serves as a milestone in this transition, signaling that the government is ready to move from the research phase to the implementation phase of its feedstock diversification program.

Economic Implications and the Consumer Price Index

The price of plastic is a critical factor in the overall health of the Indonesian economy because plastic packaging is ubiquitous in the fast-moving consumer goods (FMCG) sector. From food and beverages to cosmetics and household cleaning products, the cost of packaging often accounts for a significant percentage of the final retail price.

Minister Santoso emphasized that the government’s primary goal is to prevent a "trickle-down" effect where high raw material costs lead to higher prices for everyday consumers. "We hope this crisis ends soon. Plastic is a vital component in the supply chain of various consumption products. If the price of plastic drops, it will have a positive impact on many other sectors, as so many products are wrapped in plastic," he explained.

Data from the Indonesian Olefin, Aromatic, and Plastic Industry Association (INAPLAS) suggests that Indonesia’s demand for plastic continues to grow by approximately 5% annually, driven by the expanding middle class and the rise of e-commerce. However, the country still faces a significant trade deficit in petrochemicals, importing billions of dollars worth of raw materials every year. Successfully transitioning to more varied or cheaper feedstocks like LPG could potentially reduce this deficit and improve the competitiveness of Indonesian-made goods in the international market.

Technical Challenges and Industry Readiness

While the switch from naphtha to LPG offers economic promise, it is not without technical hurdles. Most of Indonesia’s existing petrochemical plants are configured specifically for naphtha cracking. Transitioning to LPG requires "feedstock flexibility" in steam crackers, which may necessitate significant capital investment to modify furnaces and recovery sections.

Industry analysts point out that while some modern crackers are designed to be "flexible"—meaning they can switch between naphtha, propane, and butane depending on market prices—older facilities may require extensive retrofitting. The government is currently in talks with major state-owned and private players, such as PT Chandra Asri Petrochemical and Pertamina, to assess the feasibility of these upgrades.

Furthermore, the logistics of importing and storing large quantities of LPG for industrial use differ from those of naphtha. LPG requires pressurized or refrigerated storage tanks and specialized terminals. Consequently, the government’s plan to source LPG from Eurasia will likely involve not just trade agreements, but also infrastructure development projects to ensure the domestic distribution network can handle the new feedstock.

Broader Geopolitical and Trade Context

Indonesia’s approach to sourcing LPG from Eurasia, particularly from countries near Russia, reflects a pragmatic "free and active" foreign policy. Despite international sanctions on certain Russian entities following the conflict in Ukraine, Indonesia has maintained that it will prioritize its national economic interests and energy security.

The Eurasian Economic Union (EAEU), led by Russia and including Kazakhstan, Belarus, Armenia, and Kyrgyzstan, represents a massive energy surplus region. By strengthening ties with these nations, Indonesia is positioning itself to benefit from some of the lowest energy costs in the world. This strategy also serves as a hedge against Western market volatility and the specific geopolitical risks associated with the Middle East.

Trade experts suggest that if Indonesia can successfully negotiate a Comprehensive Economic Partnership Agreement (CEPA) or a Free Trade Agreement (FTA) with the EAEU, the duty-free import of LPG and other industrial raw materials could become a reality, providing a long-term competitive advantage for the Indonesian manufacturing sector.

Conclusion and Future Outlook

The Indonesian government’s proactive stance on replacing naphtha with LPG is a clear indication of its commitment to industrial sovereignty and inflation control. By diversifying both the geography of its suppliers and the chemical nature of its raw materials, Indonesia is building a more resilient economic framework that can withstand the shocks of a volatile global landscape.

As the Ministry of Trade continues its negotiations with Eurasian partners and monitors the arrival of alternative shipments from India and the Americas, the focus remains on the "bottom line": ensuring that Indonesian consumers do not bear the brunt of distant wars through higher prices at the grocery store. The success of this transition will depend on the speed of infrastructure adaptation and the continued agility of Indonesia’s trade diplomacy in an increasingly fragmented world.

For now, the industrial sector remains in a state of watchful transition. The upcoming months will be crucial as the first "alternative" shipments arrive and the technical assessments for LPG integration are finalized. If successful, Indonesia may set a precedent for other Southeast Asian nations looking to decouple their essential manufacturing sectors from the unpredictable fluctuations of the Middle East energy corridor.