Interannual variations in eddy kinetic energy (EKE) in the Sulawesi Sea and their driving mechanisms are investigated based on the outputs of Ocean Forecasting Australia Model version 3 from 1979 to 2014. The interannual EKE variability is found to be primarily modulated by the Mindanao Current intrusion transport (MCIT). By regulating the intensity of barotropic instability of the cyclonic loop current in the Sulawesi Sea, the MCIT fluctuation leads to the downstream interannual EKE variations. Further analysis suggests that the paths of Mindanao Current (MC) and New Guinea Coastal Current and Undercurrent (NGCC/NGCUC) influence the interannual MCIT variability. During high-EKE periods, the NGCC/NGCUC is weakened, and the MC retroflection extends to south of 5°N, which causes MCIT to increase by 0.60 Sv and strengthens the barotropic energy conversion from mean kinetic energy to EKE in the Sulawesi Sea. During low-EKE periods, the NGCC/NGCUC is intensified whereas the MC retroflection retreats to a northernmost path, resulting in a decrease of 0.58 Sv in MCIT and thus a low EKE level. In addition, mesoscale eddies to the east of the Sulawesi Sea in the western Pacific also have an impact on the MC intrusion. This study highlights the significance of the nonlinear dynamics of western boundary currents in modulating eddy activities in the formation region of the Indonesian Throughflow.