Indonesia Tightens Nickel Grip Amid US-China Rivalry and Battery Shifts

Indonesia’s move to tighten state control over its nickel industry marks a critical inflection point in the global race for energy transition minerals. By leveraging its position as the provider of approximately 60% of the world’s nickel supply, Jakarta is attempting to force a transition from a raw material exporter to a high-tech industrial hub. This strategy, initiated under former President Joko Widodo and accelerated by the current administration, aims to capture the entire electric vehicle (EV) value chain, from extraction to battery assembly. However, the timing of this consolidation is fraught with risk, as the global market begins to pivot away from the very metal Indonesia has bet its future on.

The scale of the recent government intervention is unprecedented. In 2025, Indonesian authorities launched a massive crackdown on what they termed illegal exploitation, seizing more than 4 million hectares (9.8 million acres) of mines, plantations, and processing sites. With an additional 4.5 million hectares targeted for seizure this year and $1.7 billion in fines already levied, the state is effectively re-nationalizing vast swaths of the resource landscape. While framed as a cleanup of corruption and bribery-tainted licenses, the move also serves to consolidate the government's leverage over foreign investors, particularly those from China and the United States who are locked in a struggle for critical mineral security.

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With an additional 4.5 million hectares targeted for seizure this year and $1.7 billion in fines already levied, the state is effectively re-nationalizing vast swaths of the resource landscape.

China currently holds a dominant position in Indonesia’s nickel sector, having poured billions into refining infrastructure on the island of Sulawesi following the 2020 ban on raw ore exports. This partnership has been a double-edged sword for Jakarta. While Chinese investment provided the capital necessary for domestic refining, it has complicated Indonesia's relations with the West. The United States, through the Inflation Reduction Act (IRA), has sought to diversify supply chains away from Chinese influence, leaving Indonesian nickel in a precarious position regarding U.S. tax credits and market access. Jakarta’s tightening control may be an attempt to create a more unified national front to negotiate better terms with both superpowers.

Simultaneously, the technological landscape is shifting beneath Indonesia’s feet. The rapid rise of Lithium Iron Phosphate (LFP) batteries, which require no nickel or cobalt, is challenging the dominance of nickel-manganese-cobalt (NMC) chemistries. Many Chinese EV manufacturers, previously the primary consumers of Indonesian nickel, are increasingly adopting LFP designs for their cost-effectiveness and thermal stability. This shift suggests that Indonesia’s window of maximum leverage may be closing faster than anticipated. Analysts from the Energy Shift Institute have noted that while the country has successfully exploited its forests for mining, it has yet to fully realize the promised high-value EV manufacturing ecosystem.

Environmental and social costs further complicate the narrative. The expansion of nickel mining has led to significant deforestation and ecological disruption, often justified by the government as a necessary sacrifice for the global energy transition. As global automotive brands face increasing pressure to ensure ethical and sustainable supply chains, Indonesia’s environmental record could become a barrier to entry for Western markets. The coming year will be decisive as Jakarta attempts to balance its state-centric resource nationalism with the evolving demands of a global market that is becoming increasingly wary of both geopolitical risk and environmental impact.