India wants oil price band, Saudi Arabia moots pro-poor initiative (Roundup)

June 22nd, 2008 - 11:07 pm ICT by IANS  

A file-photo of P. Chidambaram

Jeddah, June 22 (IANS) The world’s top oil producing and consuming nations have embarked on a new dialogue to bring under control the spiralling prices that have pushed inflation levels to historic highs. At an emergency meeting convened by Saudi Arabia here Sunday, they suggested and discussed various means to tackle the global oil price rise.

Saudi Arabia’s King Abdullah Bin Abdulaziz proposed a five-pronged strategy even as India suggested an oil price band.

Welcoming the delegates to the meeting, King Abdullah said his country had increased production by 700,000 barrels per day (bpd) to 9,700,000 bpd in the last few months and blamed market speculators, taxes and increase in consumption in rising economies for the rise in oil prices.

The Saudi ruler said, “…I call for launching the initiative of ‘energy for the poor’ and its aim is to enable the developing countries to confront the increasing cost of energy.”

He called upon the World Bank to organize a meeting as soon as possible for the donor countries and regional and international financial institutions to discuss and activate this initiative.

“Secondly, I call upon the Ministerial Council of Opec (Organization of Petroleum Exporting Countries) Fund for international development to meet and consider the approval of a parallel programme for the previous one with continual characteristic, and I propose an allocation of $1 billion for this programme,” he said.

The Saudi monarch also promised $500 million as soft loans to help developing countries obtain energy and finance development projects.

He called for the formation of a working group of countries and organizations participating in the Jeddah meeting to follow up and implement recommendations to be issued by the conference in addition to monitoring developments in the oil market.

King Abdullah promised the group all human and material aid from his country.

India’s Finance Minister P. Chidambaram, addressing the summit, said the only way to check the sky-rocketing prices and the resulting inflation is for both producers and consumers to find a common ground and that a price band mechanism would instil mutual confidence.

“Consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level,” Chidambaram said, speaking on behalf of the Indian delegation at the ministerial segment of the conference.

“In the band between these two levels, let prices be determined by market forces. This is the only way to shelter the world from volatility and unpredictability in oil prices,” he said.

Chidambaram and Petroleum and Natural Gas Minister Murli Deora are heading the Indian delegation, which also includes Petroleum Secretary M.S. Srinivasan.

“Oil prices threaten to wipe out the economic gains made by developing countries in recent years. The irrational escalation in oil prices is the cause of diversion of scarce resources from education, health and other social sector schemes,” he said.

He said that after India passed on only nine percent of the price increase to consumers three weeks back, the inflation rate had crossed 11 percent.

“We are sorry to note that even oil producing countries such as Indonesia, Russia, Saudi Arabia and Venezuela face double-digit inflation rates ranging from 10.5 percent to 29.3 percent,” he said.

He called upon the oil producing nations to re-assert their leadership in price formation and “not remain passive spectators of speculation and paper trading in oil”.

Chidambaram rejected suggestions that the high oil prices were because of rising demand.

“Surely, demand and supply dynamics cannot explain what has happened over the last 12 months. How is it that oil prices were $70 a barrel in August 2007 and how is it that they have doubled when there has been no dramatic change in demand?” he asked.

According to Chidamabaram, there was ample evidence that large financial institutions, pension funds and hedge funds have channelised billions of dollars into commodity investments and derivatives.

“It is common knowledge that these financial transactions are unregulated and highly opaque. The demand for oil generated by these funds is purely speculative,” he said, while urging producers and consumers to wrest control over oil trading from the hands of speculators.

Saudi Arabia’s Minister for Petroleum and Mineral Resources Ali al-Naimi said increasing production is unlikely to bring down prices.

According to al-Naimi, the reason for the spiralling global oil prices lay somewhere else and not in supply-demand imbalances.

“I am convinced that the supply and demand balances and crude oil production levels are not the primary drivers of the current market situation and that markets are already well-supplied,” he said.

The Jeddah meeting was attended by representatives of 36 oil producing and consuming countries, including India, seven international organisations, and a number of global oil majors.

According to reports, participants of the Jeddah summit will meet again in London later this year for follow-up action.

Meanwhile, the Indian delegation was also planning discussions with its counterparts from Iran and Venezuela on the sidelines of the Jeddah meet.

“The Indian delegation has also planned meetings with the delegations from Iran and Venezuela today (Sunday),” a diplomatic source told IANS.

The India-Iran oil pipeline issue would come up for discussion during the meeting between the two sides, Deora was quoted as saying.

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