Indonesia is rapidly expanding its aluminum production amid disruptions caused by the ongoing conflict in Iran, leveraging its abundant coal reserves to power new smelters despite environmental concerns. The escalation of the Iran war has triggered supply shortages and increased fuel costs, pressuring global aluminum markets and prompting Indonesia to move quickly to boost output.

Aluminum, widely used in products ranging from electronics to vehicles, is energy-intensive to produce. The Middle East, which typically accounts for about 9% of global aluminum supply, has seen its production slashed by approximately 44% this year compared to 2025 levels, according to commodities information agency Fastmarkets. Energy shortages and infrastructure attacks have forced companies such as Emirates Global Aluminium to abandon deals, while Qatar Aluminium Ltd. has reduced its output. Iranian strikes have also damaged facilities at Aluminium Bahrain, further aggravating supply challenges.

Prior to the conflict, aluminum was trading between $3,150 and $3,250 per metric ton. Prices peaked near $3,780 in June, though they have since declined to around $3,400 per ton. These market shifts have created opportunities for other regions, particularly Southeast Asia, to fill the gap. Indonesia, with support from Chinese investors who have funded roughly 75% of upcoming projects, is positioned to capitalize on the increased demand.

Indonesia aims to significantly expand its production capacity, targeting a fourfold increase in alumina output to 32.5 million metric tons and boosting aluminum production from about 1 million metric tons in 2025 to 14.5 million metric tons by 2030. These efforts are largely powered by newly constructed "captive coal" plants—off-grid facilities dedicated solely to smelters—designed and financed by private firms.

Environmental groups and analysts warn that these developments conflict with Indonesia’s commitments to reduce coal dependency and lower greenhouse gas emissions. Coal is the largest source of fossil fuel emissions globally, and aluminum production contributes about 2% of annual greenhouse gases worldwide, totaling roughly 1.1 billion tons of carbon dioxide equivalent each year. Captive coal plants in Indonesia are particularly worrisome because they are not subject to stringent emissions tracking.

According to the Centre for Research on Energy and Clean Air (CREA), if all planned aluminum projects proceed, Indonesia’s domestic bauxite reserves could be exhausted in less than 12 years. China, having imposed a domestic cap on aluminum production since 2017, has turned to overseas investments in countries like Indonesia, injecting between $5.5 billion and $6 billion into the sector with expectations that investments will reach $30 billion by 2030.

Indonesian officials classify nickel and aluminum as “transition minerals” vital for clean technology applications, such as electric vehicle batteries and solar panels. This classification has allowed companies to promote coal-fueled production as aligned with climate goals, despite coal’s high emissions profile. Observers note this presents a "loophole" that potentially greenwashes environmentally harmful practices.

While cleaner energy options like hydropower exist to power aluminum smelters, their higher cost and longer development time have led Indonesia to prioritize rapid expansion to seize the market opportunity created by the Iran conflict. Critics argue that this emphasis on speed exacerbates environmental damage and undermines longer-term sustainability objectives.