Australia and Indonesia were expected to finalise a major trade deal at ASEAN next week, but the government’s potential embassy move in Israel may have soured relations with Jakarta.
Indonesia may refuse to sign a highly anticipated trade deal with Australia at the ASEAN conference next week unless the Morrison government rules out recognising Jerusalem as Israel’s capital and moving its embassy.
SBS News understands Australian diplomats expect Indonesia to seek a commitment from the government that it will not go ahead with the move before it signs the agreement.
Prime Minister Scott Morrison’s initial announcement that he would consider the move was criticised at the time by Indonesia’s Foreign Minister Retno Marsudi, who said it could undermine the peace process in the Middle East.
Nonetheless, the government had insisted the trade deal was “on track” and would be finalised this year.
Finance minister Mathias Cormann said he had spent "most of the last week in Indonesia meeting with senior ministers", speaking on Sky News on Friday morning.
He said they were continuing to work "constructively" and the government was "keen" to secure the deal before the end of the year.
The government has not made a decision on whether to move the diplomatic outpost in Israel from Tel Aviv to Jerusalem, nor set any deadline for announcing its final position.
A Human Rights Watch researcher told SBS News the Indonesian government would face significant domestic pressure on the issue – with an election due in the Muslim-majority democracy in around six months.
Most Indonesians considered Israel the aggressor in the conflict with Palestine, the researcher said, and the issue had become a “lightning rod” for both moderate and extremist Islamic groups in Indonesia.