Indonesia Cuts Plastic and LPG Import Duties to Zero as Hormuz Crisis Disrupts Supply

Six Months of Tariff Relief for a Strained Industry

Indonesia is removing import duties on critical plastic raw materials and liquefied petroleum gas (LPG) for six months beginning in May 2026, responding to a petrochemical supply shock that has pushed plastic resin prices up by 50 to 100 percent. Chandra Asri Petrochemical and Lotte Chemical Indonesia, the country's largest petrochemical producers, have declared force majeure after struggling to secure enough naphtha, the raw material used to make essential plastics.

Coordinating Minister for Economic Affairs Airlangga Hartarto announced the intervention on April 28 at the Investor Daily Roundtable at Hotel Mulia in Jakarta. Duties on the affected plastic materials, previously ranging from 5 to 15 percent depending on product classification and country of origin, will fall to zero. The government is also removing the 5 percent duty on LPG imports for industrial use.

Airlangga said the measures respond to difficulties obtaining naphtha amid conflict affecting the Strait of Hormuz. Explaining the scope and duration of the intervention, he said:

This is an intervention to lower import duties, primarily for the petrochemical industry which is struggling to obtain naphtha due to the conflict in the Strait of Hormuz. We will give everything zero percent import duty but only for six months.

Indonesia's immediate concern is the chain connecting petrochemical plants to packaging factories and, ultimately, household purchases. More expensive plastic can raise the cost of food containers, beverage packaging and other consumer goods. Authorities want to contain that pressure before it reaches supermarket shelves and retail prices across the archipelago.

The timetable runs from the announcement to implementation and then a review:

• April 28, 2026: Airlangga announced the emergency duty reductions in Jakarta.
• May 2026: The zero percent duties take effect for six months.
• After the six month period: Authorities will reassess market conditions.

No exact date was given for that reassessment. The temporary window makes the policy an emergency response, rather than a permanent change to Indonesia's protection of its chemical industry.

How Hormuz Disruption Reaches Indonesian Factories

The Strait of Hormuz separates the Persian Gulf from the Gulf of Oman and carries approximately 90 percent of global naphtha shipments. Military conflict involving Iran has disrupted traffic through the narrow passage, creating delivery bottlenecks that reach manufacturing centres across Asia, from Tokyo to Jakarta.

Naphtha is a volatile mixture of liquid hydrocarbons produced during crude oil refining. Petrochemical facilities process it into chemicals used to manufacture plastics, including polyethylene and polypropylene. Those plastics become products ranging from food packaging films to automotive components and construction materials. A shortage at the beginning of this production chain can interrupt work at many factories further along it.

Middle Eastern production supplies a large share of the naphtha on which Asian manufacturers depend. The limited alternative shipping routes, including journeys around the Arabian Peninsula, leave those manufacturers exposed when regional security deteriorates. Finding material is only part of the problem: a shipment must also reach the factory on a schedule that allows production to continue.

Japanese manufacturers Maruzen Petrochemical and Mitsui Chemicals have cancelled import tenders during the disruption. Indonesian producers have taken the more drastic step of invoking force majeure, suspending contractual obligations because they cannot obtain adequate supplies.

Vasudev Baligopal, global director of petrochemical trading at Marex, described how security conditions are changing deliveries across the region:

Rerouting and tighter security protocols are complicating delivery schedules and tightening supply chains.

Manufacturing demand has remained steady while feedstock availability has tightened. Feedstock means the raw material a plant uses to make another product. When factories continue seeking the same material but fewer shipments arrive, prices become more volatile. That combination has made the shipping crisis an immediate concern for Indonesian officials responsible for economic stability.

Which Materials Will Enter Without Import Duties?

Indonesia's six month exemption covers polypropylene, polyethylene, high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) used for plastic packaging. HDPE and LLDPE are forms of polyethylene with different properties suited to different products. Together, the listed materials are essential inputs for packaging manufacturers serving much of the country's consumer economy.

Food and beverage containers, agricultural wraps and industrial packaging films all depend on these inputs. Removing duties is intended to make imported resin less costly and keep packaging available while domestic petrochemical producers face shortages. Resin is the plastic material that manufacturers turn into finished items such as films, containers and wrapping.

The previous duties ranged from 5 to 15 percent according to the precise product category and its country of origin. Moving those rates to zero removes one part of the cost of importing the affected materials. The accompanying LPG exemption addresses a different point in the production chain by reducing the cost of an alternative input for petrochemical plants.

Airlangga presented the intervention as a way to prevent rising industrial costs from feeding into consumer inflation. Packaging is part of the cost of getting food and drinks to customers. A producer paying more for a container or film may face pressure to charge more for the packaged product.

The two measures therefore serve connected purposes. Imports of plastic raw materials can support packaging factories directly, while cheaper LPG can help suitable petrochemical facilities keep producing some of those materials domestically. Maintaining both routes matters when a shortage affects the suppliers on which downstream manufacturers normally rely.

The government will review conditions after six months. Its approach leaves room to reconsider the emergency relief as supply changes, while keeping the intervention separate from any permanent programme of broad trade liberalisation in the chemical sector.

What Force Majeure Means for Customers

Chandra Asri Petrochemical and Lotte Chemical Indonesia dominate domestic plastic production. Their force majeure declarations mark an unusual admission of vulnerability by large producers that normally operate with substantial market influence and supply security.

Force majeure is a contractual provision used when unforeseen circumstances prevent a party from meeting its obligations. In this crisis, the producers have invoked it because difficulty securing naphtha has disrupted their ability to supply customers under existing contracts. Chandra Asri has faced particularly acute problems obtaining feedstock shipments.

Chandra Asri supplies essential resins to hundreds of smaller packaging producers across Java and Sumatra. Those businesses depend on material arriving in time to make plastic films, containers, bottles and wrapping. A disruption at a major petrochemical plant can therefore spread through a much larger network of manufacturers.

Domestic manufacturers have reported substantial difficulty fulfilling standard orders for those products. Packaging supports Indonesia's food and beverage industry, agricultural exports, product distribution and retail display. A shortage can affect several sectors at once because many different goods use the same basic plastic inputs.

The price increase of 50 to 100 percent means some plastic resins have become half again as expensive, while others have doubled in price. That rise puts pressure on packaging producers even when they can still obtain material. Their customers may then face both higher bills and less reliable deliveries.

Indonesia is confronting the disruption while trying to maintain economic growth and manage changes in energy policy and industrial regulation. Without intervention, the supply constraints threatened to idle production lines across multiple manufacturing sectors and create temporary shortages of packaged goods. The tariff relief is intended to keep factories supplied before those pressures spread further.

How LPG Can Keep Some Production Running

LPG offers a limited alternative to naphtha for petrochemical facilities able to use different feedstocks. Crackers are plants that break hydrocarbons into smaller chemical building blocks used to make plastics. Certain flexible production configurations can replace approximately 50 percent of their naphtha requirements with LPG.

Naphtha remains the preferred feedstock for most of these processes because of its chemical properties and production yields. LPG substitution can nevertheless allow suitable plants to maintain basic output during the shortage instead of shutting down completely. The degree of substitution depends on the production configuration.

Wiwik Pudjiastuti, Director of Upstream Chemical Industry at the Ministry of Industry, confirmed that mixing LPG into production remains limited but is viable for maintaining operations during the emergency period. The government's duty waiver gives producers a financial reason to use that flexibility where their facilities allow it.

LPG supplies remain available from the United States, Australia and other producers outside the immediate conflict zone. American exporters have become particularly important during the crisis because they can send LPG through Pacific routes that avoid the troubled Middle East. Access to those suppliers gives Indonesia another way to reduce its exposure to the Hormuz bottleneck.

Removing the 5 percent LPG import duty lowers a cost that manufacturers would otherwise bear when changing their input mix. The policy is designed to narrow the cost difference between naphtha and LPG and make substitution economically workable during a period of expensive raw materials.

Febri Hendri Antoni Arief, spokesman for the Ministry of Industry, said the response must account for both the petrochemical producers at the beginning of the chain and the packaging manufacturers that buy their output:

In principle, it is good news for the upstream petrochemical industry. What is important for us is to maintain the balance between the upstream and downstream industries. We continue to maintain this balance.

Upstream producers make basic materials, while downstream businesses turn them into finished products. Keeping that balance means supporting continued domestic resin production while also helping packaging factories obtain affordable supplies.

Prabowo Orders a Search for Other Naphtha Suppliers

President Prabowo Subianto has directed Energy and Mineral Resources Minister Bahlil Lahadalia to identify and secure alternative naphtha sources outside Indonesia's traditional Middle Eastern suppliers. The preference is for supplies from regions whose shipments do not depend on the Strait of Hormuz.

The directive addresses the supply problem behind the tariff response. Lower duties can make imports cheaper, but factories still need suppliers capable of delivering the material they require. Changing the source of naphtha can reduce dependence on a shipping passage affected by conflict.

Indonesia's immediate options include diversifying import relationships and using LPG where production systems permit it. Expanding domestic refining capacity is another potential way to reduce reliance on international shipping routes over the longer term. The six month tariff window gives manufacturers breathing room while the government pursues more dependable supplies.

Faster Permits Are Part of the Emergency Response

Indonesia is also revising industrial licensing and import procedures to reduce administrative delays. The government is working through the National Industrial Information System (SINAS) and strengthening the Indonesian National Standard (SNI) framework as part of that effort.

Business leaders have long complained that uncertainty over approvals can compound supply problems. Needed material can remain in warehouses for weeks while documentation, permits or technical assessments are completed. During an emergency, those delays can leave factories short of inputs even after a shipment has reached the country.

A new service level agreement mechanism will set clearer timelines and accountability for licensing approvals. In practical terms, that means defining how long an approval should take and who is responsible for processing it. The aim is to make the route from import application to factory delivery more predictable.

The Ministry of Industry will prepare detailed lists identifying commodities that require technical consideration. The Ministry of Trade will update existing import regulations to reflect the temporary exemptions and reduce confusion among importers and customs officials.

These changes connect the tariff decision with the procedures needed to use it. Customs checks, standards assessments and permit validation can all affect delivery times. Officials want the regulatory arrangements to move in step with the emergency policy so materials reach manufacturing floors without unnecessary documentation or procedural obstruction.

Why the Shock Matters Beyond Indonesia

Indonesia imports 55 to 60 percent of the raw materials needed across its industrial sector. That dependence makes disruption abroad a domestic production concern, extending the risks beyond a temporary rise in prices. The naphtha shortage shows how factories can be exposed when essential inputs come through distant routes affected by geopolitical conflict.

India has adopted comparable strategies to stabilise chemical production costs, while other ASEAN members are monitoring possible effects on regional trade and competition. Asian manufacturing economies face similar pressures from higher energy costs and disrupted supply chains linked to the Middle East conflict.

Singapore and Malaysia could also feel changes in plastic product markets as Indonesian manufacturers gain temporary cost relief from inputs imported without duties. Producers in neighbouring countries may face different competitive pressures, potentially shifting supply arrangements across borders and export patterns while the exemptions remain in effect.

The six month intervention can ease immediate costs and help factories keep operating. Indonesia's dependence on imported materials will continue to make reliable supply relationships central to industrial production. The search for alternative naphtha suppliers, limited LPG substitution and faster import approvals address different parts of that same problem.

For households, the government's central objective is to stop an industrial shortage from becoming a wider rise in everyday prices. Whether through domestic production or imported resin, packaging manufacturers need enough affordable material to keep supplying food, beverages and other goods.

Key Points

• Indonesia is cutting duties on polypropylene, polyethylene, HDPE and LLDPE used for packaging to zero for six months beginning in May 2026.
• The affected plastic imports previously faced duties of 5 to 15 percent. The 5 percent duty on LPG for industrial use is also being removed.
• Airlangga Hartarto announced the measures on April 28 at Hotel Mulia in Jakarta. Authorities will reassess conditions after six months.
• Chandra Asri Petrochemical and Lotte Chemical Indonesia declared force majeure after naphtha shortages disrupted their ability to meet contracts.
• Plastic resin prices have risen by 50 to 100 percent, increasing pressure on packaging manufacturers and the industries they supply.
• Conflict affecting the Strait of Hormuz has disrupted a passage carrying approximately 90 percent of global naphtha shipments.
• Certain flexible petrochemical configurations can replace approximately 50 percent of naphtha requirements with LPG, with alternative supplies available from countries including the United States and Australia.
• President Prabowo Subianto has ordered a search for alternative naphtha sources, while ministries prepare faster licensing procedures and updated import rules.
• Indonesia imports 55 to 60 percent of its industrial raw material needs, leaving manufacturers exposed to disruptions in overseas supply.