Indonesia officially announced that the new energy policy of B50 will increase the blending ratio of biofuels. The impact of the Iran war has spread to the palm oil market.

Indonesia suddenly shifts towards expanding the mandatory use of biodiesel, marking the latest sign of Iran war reshaping global energy policies, as more vegetable oils are used in fuel production, global vegetable oil supply tightens. Indonesia, the world's largest palm oil producer, will implement its B50 program starting from July 1st. The plan aims to increase the blend ratio of biodiesel in fuel to 50%. Indonesia's Coordinating Minister for Economic Affairs Airlangga Hartarto announced this news on Tuesday evening. This move is one of Indonesia's measures to mitigate energy supply interruptions caused by conflicts. Airlangga stated that the plan could reduce the consumption of fossil fuels by 4 million kiloliters annually. This will reduce the amount of palm oil available for export from the country, while other countries are also increasing the mandatory blending of biofuels. On Wednesday, Kuala Lumpur's benchmark palm oil futures prices rose by 1.9% at one point, hitting their highest level since 2024, before narrowing. Indonesia's move marks a significant shift from its policy in January, when officials stated that the country would maintain the current 40% blending ratio until the end of 2026, allowing policymakers more time to build infrastructure and calculate the costs of transitioning to higher blend ratios. Ivy Ng, Head of Research and Agriculture at CIMB Securities Malaysia, stated, "This renewed push may be due to concerns about global energy supply disruptions caused by the US-Iran war, soaring crude oil prices leading to diesel prices higher than palm oil, and Indonesia's efforts to strengthen energy security." This war has forced decision-makers around the world to take measures to protect their economies from rising fuel costs and supply shortages, with some countries accelerating the implementation of alternative energy plans. Thailand announced in March that it would increase the blending ratio of biofuels from the current 5% to 7% to reduce crude oil imports. The US also released long-awaited blending rules last week, requiring refiners to blend record amounts of biofuels into traditional diesel and gasoline this year. While these adjustments may help reduce energy costs for consumers, they may also exacerbate food inflation, as edible oils are a crucial component of the global diet. The UN's vegetable oil price index reached its highest level since 2022 in February. Ng pointed out in a report that increasing the mandatory blending ratio is a "structural positive" for palm oil prices, potentially adding demand of up to 4 million tons per year and limiting export supply. CIMB has raised its average palm oil price forecast for 2026 from RM 4000 to RM 4400 per ton ($1091), and also indicated that the expected impact of the upcoming El Nino phenomenon later this year will further constrain output. Nevertheless, Indonesia has not yet disclosed more details on how the B50 program will be rapidly implemented. An official from Indonesia's Ministry of Energy recently stated that road tests for vehicles, trains, and agricultural machinery are still ongoing. The surge in methanol prices due to the Iran war, a key ingredient in biodiesel production, could also pose a significant hurdle. RHB Investment Bank analyst Hoe Lee Leng stated in a report, "Given the current high methanol prices, the government may need to revise the pricing formula for biodiesel to incentivize companies to increase production."