Indonesia’s Nickel Gambit: How Jakarta is Leveraging US-China Competition for Strategic Autonomy

Indonesia is the world’s largest nickel producer, accounting for a dominant share of global output and making the country increasingly central to the global critical-minerals supply chain. Indonesia's nickel is no longer merely a mining story. It has become a test of whether a resource-rich middle power can turn mineral abundance into geopolitical bargaining power.

Illustration by The Geostrata

Indonesia possesses the resource; Chinese companies have built much of the processing ecosystem around it; and Washington is now seeking a greater role in critical-mineral supply chains. Jakarta's challenge is to benefit from both relationships without becoming strategically dependent on either.

Indonesia's rise as a nickel power is inseparable from its resource nationalist downstreaming strategy. Jakarta restricted exports of unprocessed nickel ore and pushed companies to process the mineral domestically. The policy transformed Indonesia from a major raw-material supplier into a global processing hub.

But Indonesia did not build this transformation alone. Chinese capital, technology, and industrial expertise became deeply embedded in the country's smelting and refining ecosystem. Today, Chinese firms control about 75% of Indonesia's nickel-refining capacity, illustrating the depth of this dependence.

This creates Indonesia's central paradox: Jakarta has greater control over the resource, but much of the capacity required to convert that resource into higher-value products remains connected to Chinese investment and technology. Resource nationalism therefore has not eliminated dependence; in some respects, it has created a more sophisticated form of it.

Indonesia is now trying to change that equation. President Prabowo Subianto's government has tightened oversight of strategic commodities and is seeking greater control over how resources are priced and traded.

In August 2026, Prabowo announced plans to launch the Strategic Minerals and Commodities Exchange that would establish domestic reference prices for strategic resources including nickel, with operations expected to begin in January 2027.

He argued that Indonesia should move beyond being merely a resource exporter and become a price-setter. These policies have created friction with Chinese investors. In May 2026, Chinese companies operating in Indonesia warned that reduced nickel quotas, higher taxes and revised pricing arrangements were making operations more expensive. The China Chamber of Commerce in Indonesia raised concerns directly with the Indonesian government, with several major Chinese-linked companies also facing the impact of these policy changes. But this is where the story moves beyond Indonesia and China.

WASHINGTON ENTERS THE NICKEL EQUATION.

The United States increasingly sees Indonesia as important to its effort to build more diversified critical-mineral supply chains. In February 2026, Washington and Jakarta signed an Agreement on Reciprocal Trade containing a section 5 intended to align Indonesia with the U.S. on sanctions, export controls, investment security, and measures targeting third-country economic practices, strengthening bilateral economic-security cooperation on critical minerals.

The feature commitments by Indonesia to remove restrictions on exports of industrial commodities, including critical minerals, to the United States and to cooperate with US companies in mining, processing, and downstream production. It also explicitly seeks more secure and diversified critical-mineral supply chains.

This does not, however, mean that Indonesia has chosen America over China. Calling the relationship a US–Indonesia “alliance against China” would oversimplify Jakarta's strategy. The agreement is fundamentally an economic and strategic partnership, while Indonesia continues to maintain substantial economic relations with Beijing. The distinction is crucial. Indonesia does not necessarily need to replace China; it needs alternatives to China.

If China remains Indonesia's dominant source of investment, processing technology and industrial partnerships, Jakarta's ability to impose tougher terms has limits. But if American, Japanese, Korean, European and other investors can provide additional capital, technology and markets, Indonesia acquires greater room to negotiate. This is the essence of Jakarta's strategy: diversification as leverage.

The US has a reason to participate. Washington wants to reduce vulnerabilities associated with China's position in critical-mineral supply chains, and Indonesia offers one of the world's most important sources of nickel. The G7's 2026 critical-minerals initiative further demonstrates the strategic importance now attached to diversifying supplies of minerals such as nickel.

Yet America's role should not be exaggerated either. The United States does not currently possess an industrial ecosystem in Indonesia comparable to China's. NBR argues that the more realistic route for Washington may be partnerships with Indonesian producers, midstream companies and end users rather than attempting to immediately replicate China's enormous processing footprint. Yet the absence of a comparable US industrial ecosystem in Indonesia creates a significant constraint for Jakarta.

While Washington can offer new investment, technology and market access, it cannot currently replicate the scale of China’s established processing infrastructure. For Indonesia, this means that diversifying foreign partners does not immediately reduce its dependence on China, making the development of domestic processing capabilities increasingly important to achieving genuine strategic autonomy.

CHINA'S RESPONSE IS REVEALING

Interestingly, China's response has not been a direct confrontation with the emerging US–Indonesia critical-minerals relationship. 

Instead, Beijing has focused its concerns on Jakarta’s tightening of nickel regulations, particularly measures affecting production quotas, taxation and investment conditions, while emphasising the need for predictable and stable critical-mineral supply chains. Chinese companies have protested Jakarta's tighter policies, while Chinese investors have also reportedly begun exploring alternative nickel opportunities in countries such as Madagascar, Tanzania, and New Caledonia.

There is currently little basis for claiming that Beijing has publicly declared the US–Indonesia critical-minerals relationship to be a threat requiring direct retaliation. In fact, China continues to maintain extensive economic engagement with Indonesia. This suggests that Beijing has strong incentives to preserve its position in Indonesia rather than turn the issue into an overt geopolitical confrontation.

For Indonesia, China remains too deeply embedded in its industrial ecosystem to be easily replaced. The triangular dependence has given Jakarta greater room to negotiate, but it has also exposed the limits of Indonesia's resource nationalism, for Jakarta controlling the mineral does not necessarily mean controlling the technology, capital, or markets required to capture its full value. 

CAN INDONESIA'S NICKEL STRATEGY REALLY ACHIEVE STRATEGIC AUTONOMY?

This is where Indonesia's strategy faces its greatest test. Inviting American investment does not automatically create technological independence from China. Nor does imposing tighter mining quotas automatically give Indonesia control over the entire value chain. Genuine strategic autonomy would require Indonesia to develop greater domestic capabilities in technology, processing, finance, manufacturing, and research, rather than simply changing the nationality of its foreign investors.

There is also a risk that Indonesia could replace one form of dependence with another. If Jakarta becomes overly dependent on Chinese capital, it loses bargaining power. If it becomes excessively dependent on American markets or investment, the same problem could eventually emerge in a different form.

Therefore, Indonesia's objective should not be “China out, America in.” It should be “more options, more domestic capability, more bargaining power.” This is why Indonesia's nickel strategy is significant beyond Southeast Asia.

It illustrates a broader trend among resource-rich middle powers to use great-power competition to negotiate better economic and strategic terms.

Indonesia's nickel policy is therefore not simply about who mines nickel or who owns a smelter. It is about who gets to set the terms of participation in the value chain. Indonesia may not be choosing between Beijing and Washington. It is attempting something more ambitious: making both compete for access while Indonesia strengthens its own position. The success of that strategy will ultimately depend on whether Jakarta can convert its geological advantage into industrial and technological capability. The real prize is not simply higher revenues from nickel but the ability to decide who participates, under what conditions, and how much value remains within Indonesia. 

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BY SAHANA

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