Kuwait and Indonesia: A Window of Opportunity?

From modest beginnings, bilateral ties are now being driven by some compelling factors.

By Muhammad Zulfikar Rakhmat for The Diplomat

September 11, 2015

Indonesia's petroleum company, Pertamina recently inked a memorandum of understanding with Kuwait's national oil company, covering collaboration in the development of opportunities in petroleum, liquid natural gas (LNG), and renewables. The agreement came shortly after the Kuwaiti government sent a congratulatory message to President Joko Widodo on the 70th anniversary of Indonesian independence in mid August. While Kuwait's ties with Indonesia have been relatively modest, these recent developments are articulations of gradual, yet visible, transformations in bilateral ties.

Although Jakarta and Kuwait first established relations in 1968, little happened until the 1990s. Jakarta's support for Kuwaiti independence after the Iraq invasion was the likely prompt for warmer ties. Since then, the bilateral relationship has grown steadily. Besides increased investment, trade volumes have climbed (albeit from very modest levels), to an estimated $130 million last year. Indonesia mainly imports petroleum resources and other oil products, while Kuwait imports include cement, plywood, paper, rubber, furniture and fruit.

Energy forms an important component of Kuwait's engagement with Indonesia. In 2010, the government-run Kuwait Foreign Petroleum Exploration Company (KUFPEC) purchased shares in the Indonesian unit of ConocoPhillips, which held a 25 percent stake in the Ujung Pangkah block in the East Java Sea. KUFPEC also reportedly owns other stakes in the country, including Block A gas field in West Natuna and Non Block Bula on Seram island, with an investment of $45 million. In the same year, Pertamina and KPC also planned to invest $9 billion in a refinery joint venture in Balongan, West Java, with expected output of 300,000 barrels per day (bpd). This was followed by the agreement between Kuwait Petroleum International Ltd. and South Korea's SK Energy Co. in 2012 to jointly develop a 30,000 bpd refinery in Indonesia. A year later, the Kuwaiti government announced plans to build a $7 billion refinery in Indonesia, although these were later canceled.

The issue of migrant workers has been a significant aspect of Indonesia-Kuwait relationship. There are believed to be more than 16,000 workers from Indonesia working in Kuwait. Even though the two governments have signed an MoU aiming to regulate the placement of workers, cases of migrant workers – among them Indonesians – being treated unfairly in Kuwait have long been a human rights concern. The diplomatic fallout prompted the two governments to sign yet another agreement, this one intended to improve workers' conditions.

In the meantime, Indonesia and Kuwait have maintained a moderate level of people-to-people diplomacy. The number of Kuwaiti tourists visiting Indonesia has increased by 30 to 40 percent, to 1300 people. In addition, Kuwait took part in the Asian-African summit that was held in Bandung early this year. For its part, Indonesia participated in the "Living Kuwait" exhibition early this year, hoping to promote the country's tourism and culture. The two countries also meet frequently at sporting fixtures. This exchange is set to increase as Jakarta has announced a decision to exempt Kuwaiti visitors from visa requirements. While strengthening a partnership is not a simple process, the increased human contact will help bolster ties.

Relations have also been strengthened by aid and loans. Since 2001, Kuwait has been one of Indonesia's biggest donors. For example, it granted Indonesia a $50 million soft loan to help finance the country's development projects. Kuwait was also among the leading providers of humanitarian aid to Indonesia after the country was hit by the tsunami in 2004 and in the aftermath of Java earthquake in 2006. Kuwaiti money built a village located in the area devastated by the tsunami, featuring 150 houses, a mosque, as well as a medical center. In subsequent years, Kuwait also completed a number of other projects in Indonesia, including water purification stations, infrastructure, orphanage, providing 300 fishing boats, offering heavy equipment for paving roads, and donating relief supplies. The most recent example was in July this year when the Kuwait Red Crescent Society (KRCS) opened the Al-Mubarakhiya School in Banda Aceh.

Kuwait's recent overtures to Indonesia are hardly impulsive. For Kuwaitis, Indonesia's position as Southeast Asia's largest economy and a G20 member makes it an attractive target for investment. And with a population of over 250 million, Indonesia is a very attractive consumer market for Kuwaiti exports. Indonesia's strategic position also offers Kuwait an opportunity to strengthen its foothold in the region. With no sign to an end to the instability in the Middle East, it is not surprising that Kuwait sees the growing economies of Southeast Asia as prudent alternatives.

As for Indonesia, Kuwait's growing presence is welcome. Once a major petroleum exporter, Indonesian now consumes as much as energy it produces, and Kuwait is one of the world's major energy producing countries. At the same time, in spite of its status as a Southeast Asia's largest economy, Indonesia needs billions of dollars in investment to revamp its economy and bring down unemployment, currently around 10 percent. Jakarta has also been keen to expand its consumer market to hedge against the danger of potential economic mayhem in America and Europe, and Kuwait not only offers Jakarta a pathway to access untapped consumer markets, it also serves a hub for economic expansion in the Gulf and the wider Middle East.

Muhammad Zulfikar Rakhmat has lived in the Middle East for eight years. He holds a B.A. in International Affairs from Qatar University and has just completed an M.A. in International Politics at the University of Manchester.

Source: Kuwait and Indonesia: A Window of Opportunity?