Revitalized Interactions Between the Gulf and Indonesia

Over the past 20 years, Indonesia — the world’s fourth most-populous country and the largest Muslim-majority nation — has evolved into a democracy based on tolerance and a moderate interpretation of Islam, and has emerged as one of Asia's fastest-growing economies. This article is part of a series on “Indonesia and the Middle East: Exploring Connections,” which examines the nature, scope, and implications of Indonesia's ties with the MENA region. See more ...

Commercial and religious ties between the Gulf states and Indonesia span centuries, emphasizing strong people-to-people connections and Islamic brotherhood.[1] However, they have generally lacked significant economic convergence, joint developmental priorities, and close foreign policy coordination. Iran was eager to develop closer connections with Jakarta after Indonesia’s democratization in 1998 and was encouraged in building economic, religious and academic ties with Indonesia in contrast to some GCC states. Indonesia did not impose sanctions against Iran during a UN vote in 2007, yet the country has remained sensitive to Saudi national security interests by raising its concerns with the Iranian government over its nuclear program, emphasizing respect for the Non-Proliferation Treaty (NPT) and supporting the Joint Comprehensive Plan of Action (JCPOA).

In this context, growing trade and investment relations with GCC states, notably Saudi Arabia and the United Arab Emirates (UAE), became the norm in the 2010s, building up to King Salman’s visit with a 1,500-member entourage in 2017. Indonesia, with a population of around 275 million (representing about 40% of Southeast Asia) and the largest economy in the Association of Southeast Asian Nations (ASEAN), is set to play a more prominent role in the Indo-Pacific region in the coming years. As a non-aligned state with a preference for a multipolar world order, it also fits well into Saudi Arabia and the UAE’s long-term hedging strategies beyond traditional security ties with the United States.

Greater GCC state engagement has coincided with the presidency of Joko Widodo, who has, since being elected in 2014, pursued policies associated with expanding Indonesia’s role in international affairs. In 2020, Indonesian Foreign Minister H.E. Retno Marsudi outlined the state's 4+1 foreign policy priorities, including: “strengthening economic diplomacy; protection diplomacy; sovereignty and nationality diplomacy; and Indonesia's role in the region and globally. While the plus one is strengthening the infrastructure of diplomacy.”[2] As leader of a Muslim nation, it is logical that President Widodo would forge closer economic ties, particularly with the UAE, an entrepôt state through which Indonesia can expand ties in Africa and the wider Middle East. Attracting more inward investment will be vital in developing the new Indonesian capital in East Kalimantan as well as addressing key national economic objectives such as boosting employment.  

Saudi Arabia

Saudi-Indonesian economic relations were rejuvenated by King Salman's visit during his Asian tour in 2017 where Memorandum of Understanding were signed in areas such as trade, education, health, culture, pilgrimage, tourism, information sharing, science and technology, civil aviation, fisheries, security, defense, and counterterrorism. A Small to Medium Enterprise (SME) initiative was set up in 2021 to realize potential in generating up to $60 million in trade.[3] But Riyadh’s lack of broad-based economic growth (its main export to Indonesia being oil), and the lack of supply-demand connectivity continue to undermine economic relations. For example, Indonesia exported almost $500 million worth of cars and $318 million of worth of special purpose ships in 2019.[4] But the kingdom has already launched the Saudi National Automotive Manufacturing Company (SNAM) in 2019 and two years earlier had awarded a $3 billion contract to China Power Construction Group to build shipyard facilities. Both these nascent industries could impact important strands of their bilateral trade.

The execution of two female Indonesian domestic workers in the kingdom who were found guilty of murder in 2015 drew attention to the issue of migrant workers’ rights. The Indonesian Minister of Manpower, Muhammad Hanif Dhakiri, said at the time that “there are no standardized labor regulations that bind the said [Middle East] countries, to the detriment of migrant workers.”[5] There was a moratorium on Indonesian workers sent to the kingdom from 2011 to 2015, and a new deal was reached between Saudi Arabia and Indonesia in October 2018. This included the introduction of a new electronic system to better recruit, track, and protect workers’ contractual rights.[6] While it remains unclear whether such a system will resolve the issue of workers’ rights, a combination of changes to the Kafala system in Saudi Arabia in March 2021 may go some way to addressing the challenge. However, reduced demand for expatriate labor during Covid-19 will translate into lower remittances. The issue is one which informs Indonesian protection diplomacy and continues to plague Gulf-Southeast Asian relations more broadly, with recent emphasis on agencies and human traffickers.[7]

On security issues, Saudi Arabia and Indonesia signed a defense cooperation agreement (DCA) in 2014, covering training, education, counterterrorism, and defense industry cooperation, reflecting the kingdom’s aim of building and expanding an indigenous defense industry. Following a similar Saudi deal with Pakistan, the counterterrorism element is compelling as it serves to limit reputational damage and enhance Saudi and Indonesian membership of the Global Counterterrorism Forum (GCTF), which is designed to share good practice. Indonesia is cognizant of the threat from radicalism and has led the Detention and Reintegration Working Group in the GCTF.[8] Concern about groups such as Islamic State (ISIS) is bound to have become more acute following research by Kings College London in 2020 that found that Al Qaeda and ISIS fighters were being dislocated from frontlines in Syria and Iraq to Indonesia and Malaysia.[9] Saudi and Indonesian cooperation will remain vital in containing the evolving transnational threat from proscribed terrorist groups, especially after attacks in Syria and Iraq indicate a possible resurgence of ISIS.   

Indonesia declined to participate in the Saudi-led war in Yemen, focusing its efforts instead on the repatriation of its nationals. Jakarta remained neutral throughout the conflict. However, Riyadh is alleged to have warned Indonesia that if it did not vote against a measure to extend the independent war crimes investigation in Yemen in the UN Human Rights Council in October 2021, then it would create obstacles for Indonesians traveling to Mecca (such as not recognizing Covid-19 vaccination certificates).[10] If such Hajj politik has occurred,[11] it will have been targeted towards Indonesia concerning a vital Saudi national security interest where few other sources of direct leverage exist.

The United Arab Emirates

Like Saudi Arabia, the UAE has developed its commercial relations with Indonesia predominantly in the 2010s. In 2017 the UAE invested $2 billion in the Indonesian economy. The rationale for their bilateral relations, which have become more strategic over time, is linked to the economic rise of Indonesia as a regional hub, regional power, and G20 economy which can contribute to the UAE’s diversification and economic growth. As a proponent of moderate Islam, tolerance and diversity, Indonesia is also vital to UAE efforts in promoting alternatives to violent extremism, as well as contributing weight behind its efforts at secularization and liberalization.

The UAE has become a valuable economic partner to Indonesia, especially when $23 billion worth of deals were signed during Crown Prince Mohammed bin Zayed's visit to Indonesia in 2019.[12] They targeted Abu Dhabi National Oil Company supplies in the region, and were extended to include education, health, agriculture and counterterrorism cooperation.[13] In April 2021, UAE Energy Minister for Energy and Infrastructure, Suhail Al-Mazrouei, suggested that the UAE may invest in Indonesian Covid-19 vaccine production.[14] In September 2021, the UAE and Indonesia launched talks on a Comprehensive Economic Partnership and established the United Arab Emirates Comprehensive Economic Partnership Agreement (IUAE CEPA).[15] Should bilateral trade continue to flourish and triple, as planned, over the four years from 2021, the UAE could become one of the top five trading partners with Indonesia, currently dominated by China, the US, Japan, Singapore and India.

The UAE stated in March 2021 that it is also investing $10 billion in Indonesia’s sovereign wealth fund, the Indonesia Investment Authority.[16] Abu Dhabi Investment Authority (ADIA) is investing $400 million in Indonesia's GoTo Group as part of its pre-IPO fundraising. It is ADIA's first principal investment in southeast Asia and its biggest investment in Indonesia to date.[17] The same month, a $20 million replica of the UAE’s largest mosque, Sheikh Zayed Mosque, was gifted to Indonesia and construction began in Central Java province. It is expected to be completed in 2022[18] and shows the near monopoly on mega mosque construction (this one has capacity for 10,000 worshippers) is no longer occupied by the kingdom. The UAE is leveraging a vacuum of Islamic and economic influence across the Muslim world, targeted especially at emerging powers such as Indonesia and India.

The UAE agreed to invest $32.7 billion across a range of industries in Indonesia following President Widodo’s November 4, 2021, visit to the UAE. Projects are expected to include a DP World investment in port infrastructure, a Masdar deal with Pertamina on floating solar panels, and G42 investments in smart city projects, telecoms and genomics laboratories.[19] Indonesia is intent on expanding infrastructure and here personal relations between President Widodo and Sheikh Mohammed bin Zayed Al Nayhan (MBZ) will play a leading role.

MBZ will be guest of honor at the G20 summit in Bali in 2022. He is personally connected to Indonesian economic development through his role as chair of a committee that will oversee the construction of a new Indonesian capital in East Kalimantan at an estimated cost of $34 billion.[20] With just 19% funding from the Indonesian state budget, there are high expectations that the committee will be able to attract significant additional investment. Its members include high-profile figures such as former British Prime Minister Tony Blair, and Masayoshi Son, billionaire founder and chief executive of SoftBank.[21]

On defense, both states are members of the Indian Ocean Navy Symposium (IONS), a initiative to increase naval cooperation, and the UAE was Chair of the Indian Ocean Rim Association (IORA) from 2020-2021, in which Indonesia is also a member. The UAE and Indonesia also cooperate in the GCTF and the UAE can offer Indonesia expertise derived from hosting the Sawab and Hedaya counterterrorism organizations. Indonesia manages to balance between the US and China, partly by playing a leading role in ASEAN. Jakarta’s experience could therefore be instructive for the UAE, which has already experienced pressure from the Biden administration over alleged Chinese military facility construction at Khalifa Port and over the terms of the sale of the F-35, which led to talks with the US over the purchase being suspended by the UAE in 2021. While Indonesia and the UAE enjoy growing socioeconomic relations, the greatest impediment to sustaining strong personalized political relations looks set to come from Iran as a key determinant of UAE focus.  

Great Power Competition: The Gulf and the Indo-Pacific

As Saudi Arabia, the UAE and Indonesia strive towards increasingly strategic relations, there is a risk of manipulation or leverage as the US and China vie for influence over the coming years. China could gain advantage from exclusive cooperation with these GCC states in areas such as artificial intelligence, biogenetics, digital surveillance and port operations.[22] Chinese companies operating in sensitive industries in some GCC states have already led to a US response, but generally the Biden administration has sought to reassure US allies through selling more offensive weapons and by deploying a navy destroyer and fighter jets in response to the Houthi attacks on Abu Dhabi in 2022. While the Emir of Qatar is the first Gulf leader to have visited the White House, there is little to suggest that Saudi and UAE hedging strategies have been ineffective.

Indonesia is also perceived by Washington as an important ally. The US upgraded its relations with Indonesia to a strategic partnership in 2016 and the visit by US Secretary of State Anthony Blinken to Indonesia and Malaysia in December 2021 highlighted the geo-strategic significance of these states for the Biden administration and the economic resources being deployed to the Indo-Pacific. While Indonesia fears being drawn into tensions in the South China Sea, there could be further efforts by the US to maintain primacy in the region, for example by corralling a wider range of allies to help tip the shifting balance of power back in its favor.

Generally, there is a bigger opportunity for Saudi Arabia, the UAE and Indonesia to balance between the US and China for greater relative autonomy than at any time since the end of the Cold War. The picture will be more complex as the US, China and India become more active in the Indo-Pacific, along with Japan and Australia. Nevertheless, the incentive remains for the GCC states to avoid entanglement and achieve their Vision objectives, and for Indonesia to focus on advancing its structural reforms and boost its green and blue growth agendas, making it somewhat dependent on the US, but increasingly on the UAE.   

Conclusion

Given Saudi and Emirati preoccupation with the Iranian threat, a historical lack of engagement with Indonesia, and past disagreements over labor practices, the speed of their economic engagement has been surprising but consistent with the timelines of their respective Vision strategies. There are no clear US or Chinese influences on these bilateral relations per se, but instead a series of scenarios which could advance or undermine them, including Chinese commercial strategy in the Gulf. The more urgent questions of these bilateral relations surround the resurgent threat from terrorism, sources of dependency such as hajj quotas, and the ebb and flow of personal relations.