The Arab Gulf States Institute in Washington's eighth annual Petro Diplomacy conference examined the upheaval in the oil and gas markets following Russia’s invasion of Ukraine and the role of Gulf Arab oil producing states in meeting the sudden demand surge.
The Gulf Arab states’ “Look East” policy has focused on Asia’s Big Four – China, India, South Korea, and Japan, paying less attention to several major investment and trade deals with Indonesia. The continued rise of Indonesia, a G-20 economy, as a Southeast Asian hub has encouraged the Gulf Arab states to view it as both an investment destination and avenue for their economic diversification and growth endeavors, which could be replicated with others in the 10-member Association of Southeast Asian Nations.
Indonesia, the largest ASEAN economy, has secured investment commitments worth tens of billions of dollars in multiple sectors in recent years from some Gulf Arab states, particularly the United Arab Emirates. Indonesia also hopes to use the UAE as a hub to facilitate Indonesian exports to the Middle East and Africa.
There are multiple factors supporting strong ties between Indonesia and the Gulf Arab states. First, Indonesia is viewed by some as a proponent of moderate Islam, which some Gulf Arab states have similarly made a major focus over recent years. Additionally, Indonesia is among the top workforce providers, especially female domestic workers, to the region. Further, Gulf Arab states and Southeast Asian countries could collaborate to avoid getting caught in the crossfire of the U.S.-China superpower competition that is heating up in the Middle East and South China Sea as well as enhance alternative defense and security arrangements.
Historical connections, market size, and economic potential have all contributed to catapulting Gulf Arab-Asia ties to new highs over the last two decades. However, total trade between the Gulf Arab states and Indonesia has remained limited, reaching only $12 billion in 2018. This provides an opportunity for considerable growth, which the Gulf Arab states and Indonesia are currently aiming to capitalize on.
Deepening UAE-Indonesia Ties
The UAE is the leading regional investor in the Southeast Asian markets, accounting for 74% of Gulf Arab states’ investments in the ASEAN bloc between 2016 and 2021. During Indonesian President Joko Widodo’s visit to the UAE in July, the two countries signed a Comprehensive Economic Partnership Agreement. This is the third CEPA signed by the UAE this year, following deals with India and Israel. The agreement aims to increase annual bilateral trade from $3 billion to $10 billion within five years by eliminating trade barriers on a number of goods and services.
In a boost to UAE exports and trade, the agreement grants over 80% of Emirati exports duty-free access to Indonesia. Further, the agreement simplifies customs procedures and stresses digital trade, which should make it easier for Emirati companies to expand their businesses in Indonesia. The deal is also expected to channel $10 billion of investments into priority sectors, such as agriculture, energy, infrastructure, and logistics, while also promoting collaboration in tourism, entrepreneurship, and health care.
The agreement is the next step toward promoting trade and services after the two countries signed a string of investment deals in 2019 and 2020. During then-Abu Dhabi Crown Prince Mohammed bin Zayed al-Nahyan’s visit to Indonesia in July 2019, Emirati and Indonesian companies signed deals worth a total $9.7 billion. In January 2020, the UAE and Indonesia signed about a dozen deals worth nearly $23 billion, including in the energy and infrastructure sectors. This included a $12.6 billion agreement between the Abu Dhabi National Oil Company and Pertamina to develop a petrochemical plant in West Java. Other investments targeted ports and renewable energy, with money potentially flowing into Indonesia’s planned new capital in Borneo (East Kalimantan), moving away from overcrowded Jakarta. Abu Dhabi’s clean energy company Masdar signed a power purchase agreement with Indonesia’s state electricity company to develop Indonesia’s first floating solar photovoltaic plant. And the Abu Dhabi Investment Authority made a substantial investment to promote Indonesia’s biggest technology company, GoTo.
In November 2021, the UAE committed $27 billion in investments in Indonesia. The deals announced during a visit by Widodo involved Abu Dhabi artificial intelligence company Group 42 investing in smart city initiatives, telecommunications, and genomics laboratories. They also included a $10 billion investment in the Indonesia Investment Authority to tap opportunities in infrastructure, roads, ports, tourism, and agriculture. Another project among the deals was building a gasification plant to turn low-calorie coal into dimethyl ether, a substitute for propane in liquefied petroleum gas, a standard fuel in Indonesian kitchens. DP World also committed to developing seaports over a 30-year period, and Etihad Credit Insurance teamed up with Indonesia Re to improve funding access to small and medium enterprises to boost exports.
In addition to strong economic ties, Indonesia, the most populous Muslim country in the world, and the UAE are highlighting shared common values regarding moderate Islam and a readiness to work together to promote tolerance and fight against religious extremism. In Abu Dhabi in 2021, Widodo said, “I think this is a great potential. I see that religious moderation and diversity in the UAE are widely respected. And that is the area of cooperation we would like to explore more because we both share the closeness in the vision and characters of moderate Islam that propagates tolerance.”
The camaraderie between the Emirati and Indonesian leaders is reflected in Abu Dhabi’s Joko Widodo Street in the diplomatic enclave, named in honor of the Indonesian president in 2020. Additionally, Abu Dhabi is funding a Sheikh Zayed Mosque replica in Widodo’s hometown.
Limited Investments and Strained Ties With Saudi Arabia
In contrast to the huge deals with the Emiratis, Saudi investments in Indonesia have been minuscule, and relations, while promising, have been slow to develop because of previous frictions. Amid heightened expectation during King Salman bin Abdulaziz’s nine-day visit in 2017, the first by a Saudi king in nearly five decades, the kingdom’s companies finalized $2.4 billion in investment agreements, including in housing, a biomass power plant, and medical services. The kingdom committed to build five mosques for Indonesia’s Defense Ministry and fund three new satellite campuses of the Institute for Islamic and Arabic Studies in Indonesian provinces.
Saudi Arabia’s funding of Indonesian religious institutions has led many Indonesians to feel that it promotes conservative Wahhabism and Salafism, encouraging hate speech and violence. As a counter, some indigenous outfits like Muhammadiyah and Nahdlatul Ulama have promoted Indonesian brands of Islam in mosques and schools, thus competing with Saudi practices. Relations between the two Muslim powerhouses were also tested over Indonesia’s lack of participation in the Saudi-led coalition against the Islamic State in Iraq and the Levant in 2015.
Ties have also been strained over Saudi Arabia’s treatment of workers. After an Indonesian maid was executed for murder in 2011 in Saudi Arabia, Jakarta announced a moratorium on its nationals working in the kingdom. In response, Riyadh stopped issuing permits for workers from Indonesia. The two governments signed a new agreement in 2018 to reduce differences.
In the security arena, the Gulf Arab states and Indonesia are forging partnerships in defense and counterterrorism. Emirati and Indonesian ministries and companies have signed cooperation agreements to encourage scientific and technological development as well as manufacture and supply military products, such as drones, rifles, and aerospace machinery. Further, the two countries have agreed to facilitate mutual visits of armed forces officers as well as capacity building and human resource development. The two countries are also collaborating in production and maintenance of patrol boats and light frigates. Both countries are members of the Indian Ocean Rim Association and Indian Ocean Naval Symposium, and the UAE has had a defense attache posted in its Jakarta mission since 2019.
The UAE and Indonesia placed orders worth $17 billion and $8 billion in 2021 and 2022, respectively, for Rafales from France, and Qatar received its first Rafales in 2019. This opens doors for potential “plurilateral” engagement in joint aircraft production, maintenance, and spare parts manufacturing with France and even India, which received its full consignment of Rafales between 2020 and 2022 and has a 50% offset clause built into its deal.
As a founding member of the nonaligned movement, Indonesia prides itself as a balanced middle power in a multipolar world. For the UAE and Saudi Arabia, this fits into their “long-term hedging strategies” as they seek to develop relationships outside the traditional security ties they hold with the United States. As the U.S.-China superpower competition is likely to intensify in the coming years, almost certainly prompting middle powers to accelerate hedging activities, Indonesia, as well as other ASEAN countries, and the Gulf Arab states have many reasons to expand strategic relations.
is a non-resident fellow at the Arab Gulf States Institute in Washington and a senior research fellow at the Gulf-Asia Program at the Anwar Gargash Diplomatic Academy.
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Through its careful examination of the forces shaping the evolution of Gulf societies and the new generation of emerging leaders, AGSIW facilitates a richer understanding of the role the countries in this key geostrategic region can be expected to play in the 21st century.Learn More