The European Union's Palm Oil Restrictions: A Perspective a Commercial Diplomacy and Threats

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FORMOSA NEWS - Jakarta - Indonesia Leverages Commercial Diplomacy to Counter European Union Palm Oil Restrictions. A new study published in 2026 reveals how the Indonesian government is utilizing strategic commercial diplomacy to protect its vital palm oil industry from stringent European Union (EU) environmental regulations. Conducted by researchers Samudra and Sundawan Salya from the Sekolah Tinggi Intelijen Negara (STIN), alongside Diah Ayu Permatasari from Universitas Bhayangkara, the research evaluates Indonesia's response to the European Union Deforestation Regulation (EUDR) and the Renewable Energy Directive II (RED II). This timely analysis underscores the critical economic stakes for millions of Indonesian citizens and underscores how international trade disputes are reshaping global agricultural supply chains.

The Economic Stakes and the Rise of Green Trade Barriers
Mien Kelapa Sawit, or Crude Palm Oil (CPO), is a cornerstone of the Indonesian economy. As the world's leading producer, Indonesia generated 43 million tonnes of palm oil in 2023, accounting for 56% of the global output. The sector spans over 16.38 million hectares and provides direct and indirect employment to more than 17 million workers, including millions of independent smallholder farmers. The European Union has historically been Indonesia's third-largest global consumer of CPO, driven by high demand from major processing and importing hubs like the Netherlands, Spain, and Italy. However, the relationship has grown increasingly tense due to two major EU policy shifts:

• Renewable Energy Directive II (RED II): This policy classifies palm oil as a high-risk raw material for biofuel due to its association with Indirect Land Use Change (ILUC) and mandates a complete phase-out of palm oil-based biodiesel by 2030.
  
• European Union Deforestation Regulation (EUDR): Implemented to curve global deforestation, this law forces international operators to trace commodities back to their exact geolocation to prove they were not produced on deforested land after December 31, 2020. Failure to comply risks severe fines of up to 4% of a company's annual EU turnover.
  

Using mercantilism theory, the research team from STIN and Universitas Bhayangkara notes that these environmental mandates double as a form of disguised protectionism. The regulations shield domestic European vegetable oil industries such as sunflower and rapeseed oil from competing with the higher efficiency and lower market costs of Indonesian palm oil. The financial fallout is already evident. Indonesian CPO exports to the EU dropped by 11.6% from 4.13 million tonnes in 2022 to 3.7 million tonnes in 2023. Economists project an annual reduction in foreign exchange earnings of USD 104.55 million, alongside billions of rupiah slashed from state revenues.

Assessing the Threat: Methodology and Framework
To systematically decode this trade standoff, Samudra, Diah Ayu Permatasari, and Sundawan Salya applied a qualitative descriptive research methodology. Primary data was gathered through firsthand field observations and structured interviews with key trade and policy figures. This was supplemented by secondary data from national census statistics, international trade ledgers, and academic publications. The authors utilized a standardized threat intelligence matrix to calculate the impact of the EU restrictions. By weighing the EU's strategic intentions such as shifting international consumer perception against its capabilities to pass sweeping parliamentary bans, the researchers calculated a threat coefficient score of 14.5. This classifies the EU palm oil restrictions as a medium-level threat. The score proves that the EU possesses both the political will and the regulatory mechanisms to cause real, sustained damage to foreign market stability.

Pillars of Indonesia's Commercial Diplomacy Response
Indonesia's defensive strategy is split into two operational frameworks: policy-making diplomacy and direct business support activities.

• Policy-Oriented and Multilateral Alliances. Indonesia has actively rejected the unilateral parameters of the EUDR by organizing unified fronts with fellow developing nations. Through the Council of Palm Oil Producing Countries (CPOPC), Indonesia joined forces with Malaysia and Colombia to launch joint diplomatic missions directly to Brussels. This unified lobbying pressure contributed heavily to the European Parliament’s decision to postpone the full implementation of the EUDR. Originally set for January 2025, the deadlines have been pushed to December 2025 for large corporations and June 2026 for small-scale enterprises. Furthermore, Indonesia achieved a major international legal victory at the World Trade Organization (WTO). On January 10, 2025, a WTO Panel ruled that the EU's RED II guidelines unfairly discriminated against Indonesian palm oil compared to European-grown crops. The EU has since confirmed it will comply with the ruling and alter its discriminatory methodology.
  
• Practical Business Support and Facilitation. On the commercial front, the Ministry of Foreign Affairs and domestic trade bodies are executing robust advisory and representation frameworks. These efforts include running trade promotion pavilions at the Trade Expo Indonesia, backing independent sustainable certifications like Indonesian Sustainable Palm Oil (ISPO), and setting up workshops to prepare domestic supply chains for eventual EU compliance.
  

Real-World Implications for Global Supply Chains

The findings from STIN and Universitas Bhayangkara highlight that while delayed enforcement and WTO victories offer short-term relief, long-term dangers persist. The mandatory sharing of geolocation maps raises serious domestic data security and land sovereignty concerns for sovereign states. More importantly, the stringent compliance costs could permanently alienate smallholder farmers, who manage 40% of Indonesia's plantations. Unlike massive corporations, everyday farmers lack the digital infrastructure or funding required to undergo independent third-party sustainability audits. Samudra, Permatasari, and Salya emphasize that protecting these vulnerable communities requires immediate structural changes. The authors suggest that the state recruit professional lobbying agencies based inside the European Union to consistently challenge negative ecological narratives and secure institutional recognition for local ISPO standards.

Author Profiles
Samudra, S.In., M.Si. is a lead researcher specializing in economic intelligence and national security frameworks at the Sekolah Tinggi Intelijen Negara (STIN). His work focuses on global trade barriers, commercial advocacy, and geopolitical resource competition.
Diah Ayu Permatasari, S.E., M.M. is an academic and researcher affiliated with the Faculty of Economics at Universitas Bhayangkara. Her expertise lies in international business management, agricultural trade mechanics, and market development strategies.
Sundawan Salya, M.A. is a senior scholar at the Sekolah Tinggi Intelijen Negara (STIN) whose research examines non-traditional security threats, international economic diplomacy, and multilateral state cooperation.

Source
Samudra, Diah Ayu Permatasari, Sundawan Salya 2026. The European Union's Palm Oil Restrictions: A Perspective of Commercial Diplomacy and Threats. Formosa Journal of Applied Sciences (FJAS), Vol. 5, No. 2, 2026: halaman 615-630 *
DOI : https://doi.org/10.55927/fjas.v5i2.13
URL: https://journalfjas.my.id/index.php/fjas