With the intensifying great power rivalry, middle powers like Indonesia and Australia are increasingly asking a critical question: can economic cooperation provide a hedge against growing strategic vulnerability? This concern shaped the discussions during the Indonesia–Australia 2+2 Ministerial Dialogue held in Canberra on 28 August 2025, where both governments pledged to deepen collaboration in clean energy, industrial ecosystems and the low-carbon transition.
The Canberra meeting underscored a key recognition shared by both sides: prosperity and security are intertwined. Yet the challenge remains how to turn political intentions into practical cooperation. For Jakarta and Canberra, linking economic dynamism to regional stability will demand not only policy alignment but also concrete, sustained action across investment, innovation and infrastructure.
At the core of this partnership lies the Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA), which came into force in 2020. The agreement marked a turning point in bilateral economic relations, expanding market access, investment flows, and institutional cooperation. A 2021 joint study by Katalis and the Australian Department of Foreign Affairs and Trade (DFAT) identified IA-CEPA as a springboard for deeper integration in electric vehicles (EVs), battery manufacturing, and critical minerals processing — industries central to both nations’ economic futures.
For Indonesia, this agenda aligns with President Prabowo Subianto’s drive to industrialize resource wealth through downstream processing, particularly in nickel, cobalt and other essential minerals. His government’s economic vision places high emphasis on value-added manufacturing to reduce reliance on raw exports and create skilled jobs.
For Australia, the partnership represents an opportunity to diversify trade beyond China, which remains its largest but increasingly fraught economic partner. Canberra’s long-term investments in lithium extraction, clean energy technology and mineral processing signal a broader ambition to anchor its prosperity in a more resilient and diversified Indo-Pacific supply chain.
Strengthening ties with Indonesia therefore serves dual purposes for Australia — expanding economic opportunity while addressing structural vulnerabilities. Over the past decade, Australia’s dependence on Chinese markets has exposed it to episodes of economic coercion, including export restrictions and punitive tariffs. Diversification through Southeast Asian partners such as Indonesia reduces that exposure and enhances regional autonomy.
For Indonesia, the benefits are equally significant. Australia brings not only capital and technology but also credibility within global value chains governed by Environmental, Social and Governance (ESG) standards. Cooperation in critical minerals, green hydrogen, and clean industrial ecosystems offers Jakarta a way to attract diversified investment while avoiding overreliance on any single foreign partner.
By deepening bilateral cooperation in these areas, both nations also contribute to a more balanced Indo-Pacific economic order — one that is less dependent on a single dominant supplier and more capable of absorbing external shocks.
The Indonesia–Australia partnership is increasingly intertwined with the wider Indo-Pacific architecture, particularly through India’s growing role. Like Indonesia, India is pursuing aggressive industrial policies to expand clean energy and EV supply chains, most notably through the Production Linked Incentive (PLI) Scheme for advanced batteries. Yet India’s supply chain remains constrained by limited access to key minerals such as nickel, cobalt and lithium.
Indonesia and Australia, by contrast, sit atop vast reserves — Indonesia of nickel and cobalt, and Australia of lithium and rare earths. This resource complementarity creates the possibility of a triangular framework that connects Southeast Asia’s raw materials with South Asia’s manufacturing and assembly hubs.
Such cooperation could extend beyond trade into research, technology transfer and industrial clustering, helping to embed all three economies in diversified regional networks. By facilitating India’s access to reliable inputs for its clean energy industries, Indonesia and Australia could help counter the risks of economic bloc politics and foster a more interdependent Indo-Pacific economy.
However, deepening this cooperation requires navigating the increasingly complex US–China strategic rivalry. Washington now views clean energy supply chains — especially those involving critical minerals — as central to its national security and industrial competitiveness. Under the Biden administration’s Inflation Reduction Act and Defense Production Act provisions, securing non-Chinese sources of lithium, nickel and rare earths has become a strategic priority.
Both Indonesia and Australia occupy pivotal positions in this calculus. Australia is already a key supplier of lithium to US and allied industries, while Indonesia accounts for over 60 per cent of the world’s nickel supply, a figure expected to rise to nearly three-quarters by 2028. Yet the reality is that much of Indonesia’s nickel processing sector remains dominated by Chinese state-linked firms, which control most of the smelting and refining capacity through joint ventures and majority stakes.
This creates a delicate balancing act for Jakarta and Canberra: how to attract diversified partnerships and maintain sovereignty without being drawn into a zero-sum confrontation between the United States and China.
For both countries, the path forward lies in pragmatic cooperation that delivers tangible benefits. This includes expanding joint projects such as the Indonesia–Korea battery ventures with LG and Hyundai, the Indonesia–Australia Northern Territory MoU on critical minerals, and new frameworks for clean energy research.
Transparent investment rules and credible ESG standards will be essential to reassure partners like Japan and South Korea, whose companies are wary of entering markets perceived as politically volatile or environmentally risky. Establishing predictable regulatory frameworks and robust dispute settlement mechanisms under IA-CEPA can further enhance investor confidence.
If managed wisely, the synergy between IA-CEPA, critical minerals cooperation and clean energy ambitions could allow Indonesia and Australia to overcome existing asymmetries in industrial capability and geopolitical weight. The next phase should prioritize deliverables over dialogue:
- Joint ventures in battery and EV component manufacturing, combining Indonesia’s raw materials with Australian technology and research capacity.
- Pilot projects in nickel and lithium processing, ensuring value addition within both countries.
- Establishment of regional clean energy hubs, focusing on green hydrogen, grid connectivity and renewable energy storage.
- Institutionalizing ESG frameworks to ensure sustainability and transparency in foreign investments.
Such steps would not only bolster bilateral prosperity but also demonstrate that middle powers can exercise agency and shape their strategic environments — rather than being passive arenas of great power competition.
The true measure of the Indonesia–Australia partnership will lie in its capacity to turn ambition into action. Without concrete projects and measurable outcomes, the vision of linking prosperity with stability risks remaining aspirational. But with sustained commitment, this collaboration could redefine how middle powers navigate an era of strategic turbulence — transforming vulnerability into resilience through shared economic strength.
