Amid the surge in oil prices because of the Iran war, Indonesia has announced the roll-out of the biofuel B50, a blend of 50% palm oil-based biodiesel and 50% conventional diesel. The fuel is being tested and should be in use by July. For India, which relies heavily on Indonesian palm oil imports, this could mean tighter supply and pricier cooking oil back home. Prerna Prabhakar, a Fellow at the Centre for Social and Economic Progress, explains what Indonesia is doing and how it will impact India.Indonesia’s net imports of crude oil stood at around USD 7.8 billion as of 2025. The proposed B50 biodiesel programme aims to partially substitute these imports with palm oil-based fuel. This policy push comes amid heightened geopolitical uncertainties and a recent surge in global oil prices, which have crossed $100 per barrel in recent days.The policy also aligns with Indonesia’s broader sustainable aviation fuel (SAF) roadmap. From 2023 onwards, the government has indicated that flights operating from Soekarno–Hatta International Airport and I Gusti Ngurah Rai International Airport are expected to begin using aviation fuel blended with around 1% SAF, potentially derived from palm oil. While the initial blending ratio is modest, it signals Indonesia’s intent to extend its biofuel strategy beyond road transport into aviation.In parallel, the expansion of biofuel use is aimed at supporting domestic palm oil producers by absorbing surplus supply within the domestic market, especially in light of tightening regulations in key export destinations such as the European Union (e.g., deforestation-related rules targeting palm oil).Overall, the policy serves multiple objectives: reducing import dependence on crude oil, stabilising domestic palm oil demand, advancing alternative fuel adoption, and contributing to emissions reduction goals, positioning Indonesia as an emerging green energy leader in the region.How might diverting more palm oil towards domestic biodiesel reshape the global vegetable oil markets, especially for India as a major importer?As Indonesia accounts for half of global palm oil exports (as of 2024), the shift toward a B50 programme, which reorients supply from export markets to domestic consumption, is expected to significantly influence global palm oil markets. Export availability will tighten, pushing international prices up.Story continues below this adFor India, the implications are particularly pronounced. India imports around USD 8.5 billion of palm oil, and more than 50 per cent of it comes from Indonesia (as of 2024). Palm oil is extensively used across household cooking, the food processing industry, and industrial sectors such as soaps and oleochemicals. A supply-demand imbalance in global markets is therefore likely to translate into higher import prices, with broad-based spillovers. These include rising household expenditure, elevated food inflation, and increased input costs for industry, potentially feeding into higher output prices.While India can partially adjust by increasing imports of alternative vegetable oils, the scope for substitution is limited. Imports of sunflower oil (primarily from Russia and Ukraine) and soybean oil (from Argentina and Brazil) are relatively smaller in volume. Moreover, these oils are more expensive and sourced from geographically distant markets, increasing both cost and supply-chain risks.At the same time, there is a potential upside for the domestic edible oil sector. Higher international prices can incentivise greater domestic production of oilseeds, benefiting farmers through improved price realisation and potentially strengthening the domestic value chain over time.Why is India such a major importer of vegetable oils? What is the next best alternative to palm oil for the Indian market?India’s demand for vegetable oils has far exceeded its domestic supply, driven by a growing population and rising consumption. A key structural reason for this gap is low farm productivity in oilseeds, which results in lower yields per hectare compared with global benchmarks.Story continues below this adAnother important factor is the policy incentive structure. The farming community has largely responded to Minimum Support Price (MSP) signals, which have traditionally favoured cereals such as wheat and rice. This has led to relatively lower acreage and investment in oilseeds.In terms of alternatives to palm oil, the next best options are sunflower oil, soybean oil, and mustard oil. However, imports of sunflower oil (from Russia and Ukraine) and soybean oil (from Argentina and Brazil) are typically more expensive than palm oil and involve longer supply chains. Mustard oil, while domestically produced, has limited scalability and regional consumption preferences.Is palm oil-based biodiesel climate-positive, or does it risk undermining sustainability goals due to land-use concerns?Biodiesel can be environmentally beneficial when it is produced from existing resources and driven by productivity improvements, rather than expansion. However, if feedstock production requires deforestation or conversion of carbon-rich land to establish new plantations, the environmental impact can turn negative, potentially offsetting or even exceeding the emissions savings from replacing fossil fuels.Story continues below this adFor Indonesia, which already has large-scale palm plantations and relatively high yields, biodiesel expansion under programmes like B50 can be closer to climate-positive outcomes, provided that further land expansion is limited and sustainability standards are enforced. .In contrast, for India, where agricultural productivity remains a constraint, feedstock-based biofuel expansion does not automatically translate into climate-friendly outcomes. Scaling up biofuels may require diverting food crops or expanding cultivation, raising concerns around land use, food security, and resource stress.