Click to play videoJeddah: India has blamed speculators for the rise in global oil prices and warned that the country’s economic goals were in “great peril”.
Oil-producing nations must not to remain a "passive spectator of speculation" and should adopt a "price band mechanism" to decrease prices, said Finance Minister P Chidambaram at the meeting of world energy ministers in Jeddah.
"Oil prices threaten to wipe out the economic gains made by developing countries in recent years. The irrational escalation in oil prices is a cause of diversion of cash resources from education, health and other social sector schemes.
"The only way forward is for the both producers and consumers to find common ground. We propose that we adopt a price band mechanism," said Chidambaram.
According to Chidambaram’s proposal petrol-consuming countries will guarantee that oil prices would not fall below an agreed level and producing countries will guarantee that prices would not rise above a guaranteed level.
"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.
India has acquired the capacity to end poverty but global oil prices were endangering it capabilities. "I speak with great anguish because the goals that we have set for ourselves are in great peril," he said.
"Questions have been raised about the fundamentals of the oil industry. There is a need for the oil industry to reassert its leadership in price formation and not remain a passive spectator of speculation and paper trading in oil.
“The global hydrocarbon community must address this situation through appropriate supply side responses and calm the oil markets.”
Chidambaram, who is accompanying Petroleum Minister Murli Deora as part of the Indian delegation to the summit, warned oil producers that would sufferer too if the global economy slows down or slips into recession because of high oil prices.
Global consumption increased by one million barrels a day last year, but production fell by 1.30 lakh barrels per day. "Spare capacity, across the supply chain, has dwindled considerably. This has added to risks and uncertainty. Hence the need to fast track development of oil resources," he said.
Rejecting the suggestion that rise in demand is the cause of spiraling prices, Chidambaram said that demand and supply dynamics cannot explain what has happened over the last twelve months.
"How is 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? The causes for the current pandemonium in oil prices lie elsewhere: in unregulated over-the-counter markets and futures trading in oil," he said.
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