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Monday, September 20, 2004


Given the tenuous state of world oil markets -WTI crude crept up over $46/bbl today on yesterday's Yukos news- any political instability in a major producer country could be big trouble. Indonesia today was a healthy candidate to cause such trouble. The source of over 1 million bbl/d to the world oil markets, Indonesia is going through its third transition of power in the 6 years since the fall of its long-time dictator Suharto in 1998. The run-off election today between current President Megawati Sukarnoputri and her challenger, former General Susilo Bambang Yudhoyono was also its first by direct popular election.

It seems like a situation ripe for unrest. Yudhoyono, who once was Megawati's coordinating minister for political and security affairs, had predicted during the initial race that should it come down to a run-off that there would likely be violence. Such was the case in the succession that brought current President Megawati Sukarnoputri to power in 2001. In addition, Indonesia is home to one of the most active Al Qaeda linked terrorist groups, Jemaah Islamiah (JI). JI was responsible for the October 2002 bombing attack on the resort island of Bali that killed more than 200 people, as well the August 2003 car bombing of a western hotel in central Jakarta that killed 12 people and wounded 150. Most recently, JI has claimed responsibility for the suicide car bombing outside the Australian embassy, which killed 11 and injured over 100. JI attacks had put increased pressure on Megawati as the economy struggled to attract foreign investment.

And a little violence in Indonesia could go a long way in rattling oil traders. Not only does Indonesia contribute 1 million bbl/d to the world oil market, it is an especially important 1 million. Although Indonesia itself consumes nearly the quantiy of oil it produces, most of Indonesia's crude production is the high quality, low sulfur content crudes so desperately in demand on world markets right now, while it's consumption is of lower quality, less expensive imported blends.

The "sweet" crudes coming out of Indonesia are in high demand these days because they are best suited for refinement into gasolines and heating oils. In addition, they are especially important in Asia not only because many Asian countries are currently stocking Kerosene for the winter months, but also because many Chinese refineries are unable to process the sour crudes characteristic of Middle East oil -most particularly the Saudi crude that makes up the only spare production capacity on the world market right now. Any disruption in Indonesian oil production would thus be particularly disruptive to the market generally.

Indonesia's Sweet Stash

Crude API Gravity Sulfur Content 1000 bbl/d
Ardjuna 36.7° 0.09 60
Arun Condensate 57.5° <0.01 12
Attaka 42.3° 0.09 47
Belida 45.1° 0.02 110
Cinta 32.8° 0.12 53
Duri 20.8° 0.2 250
Handil Mix 32.2° 0.1 66
Minas 35° 0.08 420
Senipah 50.8° 0.03 40
Widuri 33.2° 0.07 51


However, with much of the vote counted -it will take weeks for the official tally to be registered as votes must be collected from the scores of islands that make up the expansive Southeast Asian country- the challenger Yudohyono appears to be the winner in a landslide, and with nary a short fired. The early tally was 58% to 41% against the incumbent. By all reports the polls were free of violence or reports of fraud. While Megawati said she would wait till the results were made official in October to concede the race, there was little doubt about the outcome.

Tonight this primarily Muslim country celebrates a further step on the road to democracy, while its citizens breath a sigh of relief at the peaceful transition of power. And the oil traders rest easy as well knowing that at least this potential trouble for the beleaguered market has been avoided.


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