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In the Indo‐Australian basin the strongest intraseasonal variability occurs during the second half of the year according to satellite altimeter data. This study attempts to identify the generation mechanism of this variability by means of numerical ocean modeling. By separately varying winds and transports through individual straits it is shown that the seasonal cycles of both the wind and the transport through the Lombok Strait play crucial roles in generating mixed barotropic and baroclinic instabilities during July–September. Both the spatial and temporal patterns of the variability are also sensitive to transports through the Ombai Strait and the Timor Passage, though to a lesser degree. The Smagorinsky scheme in the model is essential for these instabilities to reach the observed magnitude of standard deviation in sea level anomaly; constant eddy viscosity, which needs to be sufficiently large for the Somali Current in summer, would damp the eddies in the Indo‐Australian basin severely.