Indonesia Biodiesel Policy Unlikely to Hurt India

In among the world’s most aggressive biofuel push, Indonesia recently announced it will implement B60 in 2027, even before it has fully achieved the B50 roll out targeted for July 2026.

B50 is conventional diesel blended with 50% vegetable oil-based biodiesel. For the biodiesel, Indonesia uses palm oil-derived fatty acid methyl ester (FAME). The plan simply builds on the country’s previous launches of B30, B35 and B40 programmes.

Indonesia’s biodiesel programme is part of the country’s efforts to reduce its carbon emissions, advance national energy security, and eventually eliminate diesel imports. However, the move is likely to have a ripple effect on the global vegetable oil trade in general, and on India in particular.

India is the world’s largest importer of vegetable oils, importing 16-17 million metric tonnes (MMT) oil per year. Given its price discount over competing oils like soyoil and sunflower oil (which are called soft oils), palm oil has been India’s preferred oil, enjoying an almost 60% share of the total oil imports.

Palm oil prices have, however, spiked in recent months because of higher blending, the risk of lower production, and lower availability for exports. Given that India is a price-conscious market, over the last few months, it has gradually moved to importing soft oils that are relatively abundant and available at competitive rates.

Global Palm Market
Indonesia and Malaysia dominate the global palm oil market. Of the world’s annual production of roughly 81.5 MMT of palm oil, Indonesia accounts for nearly 60%, or 47.5 MMT. Malaysia is a distant second at 19.5 MMT. More importantly, Indonesia exports almost 50% or close to 24 MMT of its production, while Malaysia exports roughly 80% or 16 MMT. The progressive rise in Indonesia’s blending programme is attracting heightened global attention because of two reasons. One, the ongoing West Asia conflict has caused crude oil prices to spike, which makes domestic blending programmes fiscally more attractive for large vegetable oil producers.

Secondly, the likely adverse effect of the El Nino weather condition threatens to reduce crop production and tighten supplies.

While Indonesia has rolled out B50, it is assessing crude palm oil supply and biodiesel capacity ahead of the planned B60 mandate in 2027. It is critical for the nation to consolidate upstream crude palm oil supplies while assessing whether additional oil-palm planting or productivity increases are necessary. Equally important, policymakers need to assess fatty acid methyl ester specifications for B60. This will take time.

India Imports
Between April and July this year, the share of palm oil in India’s vegetable oil import basket has declined. Of the total imports of 5.3 MMT, the share of palm oil was just about 2.3 MMT, while that of soft oils expanded.

Importantly, India’s palm oil imports from Indonesia are slowly tapering. The country imported 320,000 tonnes in July this year, as against 520,000 tonnes in July 2025. On the other hand, India has started expanding its palm oil imports from countries such as Thailand and Papua New Guinea in recent months, while Argentina and Brazil continue to be large suppliers of soyoil.

Global vegetable oil production has been rising for the last five years. For 2026-27, production is estimated at 245 MMT, up 6 MMT from 2025-26.

While there is no shortage in the supply of vegetable oils, there are likely to be minor hiccups based on domestic policies, but the market will most likely find its balance again by accessing the alternatives.

India cannot interfere with Indonesia’s domestic biodiesel policy but the government must leverage its ‘import power’ to ensure uninterrupted supplies of palm oil. India has an around $13 billion trade deficit with Indonesia given the large imports of palm oil, coal, timber, and nickel etc which gives the country a certain weight with the exporting nation.

The Indonesian blending policy draws support from the current high price of crude oil with Brent crude trading near $95 a barrel currently. The future course of crude prices will depend on how the conflict in West Asia pans out, and when the Strait of Hormuz reopens. Any fall in crude oil prices will make Indonesia’s B50 and B60 plans fiscally unviable. In fact, the blending policy may not sustain in the medium to long run if crude oil prices settle closer to $60 a barrel in the long term.