It is often assumed that an abundance of natural resources such as oil and gas will increase the potential for success of the development process in developing countries. However, the experience of Indonesia over the past five decades does not support such an assumption – indeed, many would argue that the reverse has occurred (Karl 1997; Ross 1999; Sangkoyo 2003). Hence the main questions posed in this chapter are as follows. First, why is Indonesia still a poor country despite its abundance of natural resources? Second, what has happened to the revenues generated from oil and gas – in particular, to what extent have they been used for development? And third, why have the majority of Indonesians not been able to enjoy a trickle-down effect from the revenues generated by Indonesia's vast oil and gas reserves?

In answering the above questions, this chapter describes the politics of oil and gas extraction in Indonesia, as well as the politics of development strategy. Attention is focused on the state oil company, Pertamina, as the main institution responsible for the oil and gas industry, as well as on former President Soeharto, his cronies and the military, who were the dominant players in Indonesian politics during the New Order period.