In today’s world of growing great power competition, middle powers like Indonesia and Australia face the important challenge of using economic cooperation to protect themselves from their vulnerabilities, and this concern was a key focus during their 2+2 meeting in Canberra on 28 August 2025. The foundation for this strengthened collaboration is the Indonesia–Australia Comprehensive Economic Partnership Agreement (IA-CEPA). Since it was implemented in 2020, this trade and investment agreement has successfully increased market access and investment flows between the two countries. This aligns well with Jakarta’s focus on developing its industries, as promoted by President Prabowo Subianto, and matches Canberra’s ongoing policy of investing heavily in clean energy and processing sectors.
For Australia, strengthening its economic ties with Indonesia is critical for reducing its heavy reliance on the Chinese market, which has exposed it to economic pressure in the past. By enhancing cooperation in critical minerals, clean energy, and defence, Australia strengthens its partnership with Indonesia and boosts its own resilience as a middle power in the Indo-Pacific. This joint effort is key to improving regional supply chain strength and creating an economic structure in the Indo-Pacific that is less vulnerable to domination by one supplier.
The collaboration between Indonesia and Australia also fits within the broader geopolitical and economic landscape of the Indo-Pacific, where India’s role is becoming more significant. And Indonesia’s large nickel reserves and Australia’s valuable lithium resources create a strong opportunity for a triangular economic model. This model could connect Southeast Asia’s raw material supply with South Asia’s developing processing and assembly centres. These connections would not only enhance mutual prosperity but also integrate both countries into strong, diverse regional networks. By establishing themselves as reliable sources of critical minerals for India, Indonesia and Australia, they can counterbalance the risks of fragmentation brought on by economic bloc politics and work towards a more connected Indo-Pacific.
As they strengthen their economic ties, Jakarta and Canberra must carefully negotiate a complex strategic landscape shaped by rising US–China rivalry. The U.S. now sees critical minerals and clean energy supply chains as vital resources linked to national security and industrial strength, and materials like lithium and nickel are becoming more than just commodities; they are starting to serve as tools of geopolitical influence.
The main focus for Indonesia and Australia is to build resilience and attract a wide range of partners without getting caught in a competition between the two superpowers. This suggests that transforming high-level agreements into specific collaborative projects, such as Indonesia’s current battery partnership with LG and Hyundai and the Memorandum of Understanding with Australia’s Northern Territory, is essential. Both countries also need to create clear investment frameworks to attract partners like Japan and South Korea while expanding efforts in clean energy research.
It can be mentioned that if handled wisely, the synergy between the IA-CEPA and the collaboration on critical minerals and clean energy goals can help Indonesia and Australia overcome current challenges related to costs and geopolitical power. Both governments must demonstrate their ability to transform formal promises into tangible actions. This should involve progressing joint projects in nickel and lithium processing, ensuring strong environmental safety guidelines. Without these clear results, the partnership may struggle to create real value and risk losing its momentum.
