Indonesia Court Ruling Spooks Energy Investors

Economic Nationalism Threatens Oil, Gas Output

Indonesia's oil and gas production, already down sharply over the past decade, faces another obstacle to its full potential following a court ruling that's sure to spook foreign energy investors, according to the Economist Intelligence Unit.

On November 13, Indonesia's Constitutional Court said that parts of the country's 2001 oil and gas law were unconstitutional, saying the nation's natural resources "shall be under the powers of the State and shall be used to the greatest benefit of the people." The court also dissolved the state gas regulator.

That's got foreign firms worried, Economist Intelligence Unit analysts wrote in a recent report. Some fear the court ruling is part of a recent surge of economic nationalism, coming in the wake of a government ruling early this year that foreign miners must sell at least 51% of their Indonesian operations to locals after operating for 10 years.

"If history is any guide, mistreating foreign investors will backfire," the Economist Intelligence Unit said, noting that Indonesia's crude output tumbled 34% since to 2000, to about 918,000 barrels a day in 2011.

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