Revitalizing Indonesia’s economic diplomacy engine in the Middle East

Over the past decade, Indonesia’s economic engagement with the Arab world and Turkey has remained trapped in a traditional pattern, heavily reliant on fossil energy trade and the export of domestic labor. Yet entering the 2025–2026 period, a fundamental shift is underway. Under new national leadership, Indonesia is recalibrating its strategy toward integrating into high-tech industrial supply chains, advancing the green economy, and expanding high-value digital services.

This broader vision is now consolidated under a single strategic framework known as “Indonesia Incorporated.” The concept represents an inclusive collaborative platform that integrates the roles of the Danantara super-holding investment entity, the Indonesia Investment Authority (INA), state-owned enterprises, and small and medium-sized businesses into a unified command structure for trade policy.

In an era defined by geopolitical uncertainty and disruptions to key logistics routes in the Red Sea, Indonesia can no longer afford a passive stance. What is required is a cohesive and sharply coordinated policy orchestration capable of breaking through the tariff and non-tariff barriers that have long constrained the competitiveness of Indonesian products in Gulf markets and beyond.

Geopolitically, Indonesia’s position as the world’s largest Muslim-majority democracy offers a unique strategic advantage, one not shared by competitors such as Vietnam or Thailand. However, in the realm of economic diplomacy, such social capital must ultimately be translated into tangible trade outcomes. The challenge, however, is far from trivial.

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Security tensions in waters surrounding Fujairah and the Strait of Hormuz have driven up shipping costs and insurance premiums, forcing Indonesia to seek safer and more efficient alternative logistics routes. It is in this context that Indonesia’s economic diplomacy faces a critical test.

Encouragingly, early 2026 has already delivered tangible results. Indonesia’s breakthrough in exporting premium rice for Hajj pilgrims, alongside the initiation of strategic property development in Mecca, symbolizes a broader revival of national capacity in both food security and infrastructure.

At the same time, Indonesia is laying the groundwork for more sophisticated economic relations, where Middle Eastern capital no longer sits passively in financial instruments but is directly integrated into downstream mineral processing, geothermal development, and the global halal industrial ecosystem.

A New Jakarta–Middle East Axis

A closer examination reveals that the United Arab Emirates (UAE) remains the spearhead of Indonesia’s economic integration in the Gulf. Since the implementation of the IUAE-CEPA agreement in late 2023, bilateral trade has surged to USD 5.1 billion in 2024, supported by robust non-oil and gas exports.

As of July 2025 alone, exports to the UAE had already reached USD 2.10 billion, driven by jewelry, automotive products, and electronics. In the services sector, Indonesian AI startups such as Kata.ai have demonstrated that profit margins in Dubai can be five to ten times higher than in the domestic market, thanks to advanced digital infrastructure and strong purchasing power.

Turning to Saudi Arabia, Indonesia is shifting from a purely pilgrimage-based relationship to a large-scale investment partnership. While negotiations for the Indonesia-GCC Free Trade Agreement are targeted for completion by the end of 2026, Indonesia has already taken bold steps—most notably exporting 2,280 tons of premium “Befood Nusantara” rice for Hajj pilgrims in 2026.

More significantly, through Danantara, Indonesia has made history as the first country permitted to own strategic property in Mecca. A USD 500 million acquisition of hotels and land will pave the way for the development of an “Indonesian Hajj Village,” comprising 13 hotel towers and integrated healthcare facilities. This initiative is further reinforced by Saudi Arabia’s USD 27 billion investment commitment signed in July 2025.

Meanwhile, Egypt and Turkey play crucial roles as logistics hubs. Egypt remains a vital market for Indonesian crude palm oil, commanding a market share of 53.4%, while Indofood’s outbound investment success there offers a replicable model for other Indonesian firms seeking access to Mediterranean markets.

Turkey, for its part, is being positioned toward an ambitious trade target of USD 10 billion by 2028 through the completion of the Indonesia–Turkey CEPA in 2025. The partnership focuses on defense technology, where Turkey provides advanced systems, and the integration of green energy supply chains, leveraging Indonesia’s nickel reserves for electric vehicle industries.

Emerging partners such as Morocco, Kuwait, and Oman are forming a new layer of strategic engagement. Morocco serves as a gateway to West Africa, enabling Indonesia to exchange palm oil and coffee for phosphate, critical for domestic fertilizer production and food security.

Kuwait continues to strengthen its dominance as an energy investment powerhouse, with KUFPEC channeling USD 1.54 billion into the Anambas Block and oil and gas exploration in Aceh. Oman, meanwhile, has risen to become Indonesia’s third-largest trading partner within the GCC as of 2024, while also serving as a strategic alternative logistics hub through the ports of Salalah and Duqm, both located outside the conflict-prone Strait of Hormuz.

A Labyrinth of Challenges

Despite vast opportunities, Indonesia’s trade volume with the Middle East remains below its full potential due to layered systemic constraints. The most pressing issue is the absence of comprehensive trade agreements beyond the UAE.

In Saudi Arabia, for instance, the lack of a free trade agreement means Indonesian products face full import tariffs, making them 35% to 40% more expensive than competitors from Malaysia or Thailand. Non-tariff barriers also persist, including stringent technical standards imposed by the Saudi Food and Drug Authority (SFDA) and mandatory Arabic labeling—requirements that often prove challenging for small and medium enterprises.

Logistics disruptions throughout 2025–2026 have further complicated trade flows. Prolonged conflict in the Red Sea has forced shipping companies to reroute via the Cape of Good Hope, adding more than a month to delivery times and triggering “war risk surcharges” of USD 2,000 to USD 3,000 per container.

The impact is immediate and tangible. Automotive shipments from Indonesia, including those by Toyota, have faced delays and stockpiling due to limited vessel capacity bound for the region. Another critical challenge lies in the integrity of halal supply chains. While Indonesia holds a strong position in the Islamic economy, efforts to synchronize certification standards through a “Global Halal Mark” continue to face operational hurdles.

Implementing halal logistics, requiring strict physical separation between halal and non-halal goods, demands substantial infrastructure investment and more consistent domestic regulation. Without harmonized standards with Middle Eastern authorities, Indonesian products will continue to face repetitive audits that inflate both time and cost.

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Non-Traditional Export Strategies Toward 2030

To accelerate growth, Indonesia must adopt a “Total Economic Diplomacy” approach focused on high-value, non-traditional exports. Projections for 2026–2030 highlight sectors such as medical technology, modest fashion, and the creative economy as untapped blue oceans. 

Indonesia’s participation in the Arab Health Dubai exhibition, which generated potential transactions worth USD 13.16 million, underscores the global competitiveness of its medical devices, from hospital furniture to auto-disable syringes. Similarly, in modest fashion, Indonesia now ranks first globally, with MSME transactions reaching USD 108.82 million in international markets.

Operationally, the “Indonesia Incorporated” strategy must include diversification of logistics hubs to mitigate geopolitical risks. Greater utilization of Oman’s Salalah and Duqm ports should be prioritized as primary entry points into GCC markets. The development of bonded logistics warehouses in free zones such as Jebel Ali in the UAE would enable a hub-and-spoke distribution model, bringing inventory closer to retail markets and significantly reducing delivery times.

Digital transformation must also serve as a central pillar. Indonesian diplomacy should actively facilitate “Global Landing Pads” for AI and fintech startups in innovation hubs such as Dubai Internet City or King Abdullah Economic City. Within the creative sector, intellectual properties like the KOMARONG and Galeo Anak Segara animations have begun attracting global investor interest and should be aggressively promoted through exclusive business forums.

With Indonesia targeting economic growth of 5.6% in 2026, the integration of technology, downstream industrialization, and Middle Eastern markets will be critical to ensuring not just growth, but resilient and high-quality expansion.

Building a ‘Modern Islamic Powerhouse’ Brand

Ultimately, the most decisive factor lies in reshaping Indonesia’s national image in the Middle East. The government must work decisively to dismantle the outdated perception of Indonesia as merely a supplier of low-skilled labor.

Through strategic communication campaigns, Indonesia should position itself as a “Modern Islamic Powerhouse”—a politically stable Muslim-majority democracy that is technologically competitive and a global hub for halal industry innovation.

This narrative must be disseminated across platforms, from widely used regional social media channels such as X (formerly Twitter) and Instagram to leading international outlets like Al Jazeera, while engaging influential Middle Eastern intellectuals and business leaders as amplifiers.

Gastrodiplomacy offers another powerful instrument of soft power. The government’s policy requiring 75 Hajj kitchens in Mecca and Medina to use premium Indonesian rice and authentic spices during the 2026 pilgrimage season represents a strategic global showcase. Millions of pilgrims from across the world who experience Indonesian cuisine will effectively become informal ambassadors for the country’s products in their respective home markets.

At the same time, Indonesia’s business diplomacy must emphasize core Islamic values such as Siddiq (integrity) and Amanah (trustworthiness), currencies that underpin long-term loyalty in partnerships across the Arab world.

The success of this entire strategy will ultimately hinge on strong cross-sectoral coordination under the leadership of Danantara and relevant ministries. With the anticipated completion of the Indonesia-GCC FTA by the end of 2026, strengthened logistics hubs in Oman, and the collective momentum of “Indonesia Incorporated,” Indonesia is well-positioned to raise its flag higher on the economic stage of the Middle East.

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The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.