Australia’s decision last weekend to recognise West Jerusalem as Israel’s capital has prompted an outburst from Malaysia, and is likely to strain Canberra’s relationship with other Muslim-majority countries such as Indonesia and Saudi Arabia.

Indonesia, Australia’s closest neighbour, is probably its biggest concern because a US$12 billion trade deal is at stake. The Indonesia-Australia Comprehensive Economic Partnership Agreement has been in the works for eight years and was supposed to be signed before the end of 2018. If implemented it would, among other things, boost Australian exports of grain and live cattle and allow the country’s education providers to set up shop in Indonesia, while giving Indonesia’s exported commodities more access to the Australian market.

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But we can expect foreign and economic policy here to fade into the background in the face of strident domestic politics. Australian Prime Minister Scott Morrison insists his decision to recognise West Jerusalem was measured and well-considered, but it is widely believed he was motivated by a bid to win the Jewish vote for next year’s general election.

Indonesia’s response will also reflect its own domestic politics. As the role of political Islam increases, President Joko “Jokowi” Widodo will want to make sure that he does not antagonise the country’s conservative Muslim population - especially as he prepares for the next presidential election on April 17. He even went so far as accepting Ma’aruf Amin, an influential Muslim cleric, as his running mate to better serve the interests of this section of society.

Palestinian independence has been a foreign policy priority for Indonesia ever since the presidency of Susilo Bambang Yudhoyono. Under the leadership of President Jokowi, it has only been elevated. During the 2015 Asia-Africa Conference, Jokowi demonstrated his personal support for the Palestinians by leading a special declaration to promote their independence. He also met representatives from members of the Organisation of Islamic Cooperation on the sidelines of the conference to further discuss issue.

Clearly, Jokowi has his own domestic political considerations and will not want to challenge a conservative Muslim base that supports Palestinian independence. Before Morrison’s announcement, Indonesian Foreign Minister Retno Marsudi warned her Australian counterpart that recognising West Jerusalem would have dangerous consequences for peace and stability in the Middle East.

Jokowi, a self-made businessman, is known as the “economic affairs president” and is eager to promote economic ties. Indonesia and Australia’s bilateral trade figures are currently insipid, despite both being sizeable economies and members of the G20. In 2017, trade with Australia was only valued at about US$8.53 billion, or around 3 per cent of Indonesia’s total international trade.

Australia’s two-way trade in goods and services with Indonesia that same year was worth US$21.8 billion, or around 2.85 per cent of its total two-way trade with the world. Two-way investment between the two countries, meanwhile, was valued at US$11.8 billion last year, with Australian investment in Indonesia at US$10.7 billion and Indonesian investment in Australia at about US$1 billion.

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But if Jokowi pushes ahead with the trade deal, it would only be used by his opponents to start a smear campaign against him during the presidential election, jeopardising his chances of re-election.

Jakarta’s reaction to Canberra’s move has so far been restrained, with a pledge to continue supporting Palestinian rights and a two-state solution with Israel. But how Jokowi responds to any further outcry is being closely watched, as this could become a source of contention for radical Islamic groups during the campaign period.

In the meantime, the relationship between Indonesia and Australia is likely to continue to be a distant one, as neither country’s leader has made it his top priority. So any delay or cancellation of the trade deal will inevitably be a setback to the already fragile bilateral ties.

Siwage Dharma Negara is a Senior Fellow and Leo Suryadinata is a Visiting Senior Fellow at ISEAS-Yusof Ishak Institute