Band for oil

Finance Minister P. Chidambaram did the right thing by suggesting a price band for regulating crude oil prices.

Finance Minister P. Chidambaram did the right thing by suggesting a price band for regulating crude oil prices. OPEC did have a price band for this purpose for a brief while in 2000, but it was discontinued due to a lack of consensus among member countries. That was a time when oil prices did not fluctuate as widely as they do today. A price band now seems an obvious solution to curb extreme volatility in oil prices and India should actively seek support from China and other major oil consuming countries to take this idea forward.

Meanwhile, there are other imperatives for India and China to jointly tackle the oil crisis. Both countries are the world8217;s fastest growing consumers of crude oil, but have traditionally played a fringe role in global oil politics. A rise in oil prices affects China and India the most. If oil producing countries are given to behave more like a cartel with a clear self-interest in pushing up and sustaining higher oil prices, it is time for a counter-cartelisation by the major oil consumers 8212; led by China and India. No one can expect America to join this grouping as it already has Iraq in its folder and Iraqi oil is now more or less US oil. Therefore, if OPEC holds the trump cards on the supply side of oil, China and India hold the equally powerful cards on the demand side.

China and India accounted for about 70 per cent of the increase in energy demand between 2005 and 2007. It is predicted that the next two decades will see China8217;s oil consumption growing at a rate of 7.5 percent annually and India8217;s at 5.5 percent. In comparison, oil demand in developed countries is expected to grow only 1 percent.

It was not for nothing that the International Energy Agency had warned late last year that the demand for oil imports by China and India will almost quadruple by 2030 and could create a supply crunch by 2015, if oil producing countries do not step up production. On the other hand, OPEC8217;s power to influence oil supply and its prices will increase in the near future, since oil reserves in non-OPEC regions are mostly shallow and fast depleting. Russia8217;s oil reserves have already peaked and even the African region reserves are estimated to run out by 2025. Nigeria, Africa8217;s largest oil producer is estimated to peak in a couple of years, and production will be downhill from that point onwards.

We are not far from the day when Middle East countries will be the only major source of oil across the globe. OPEC members perhaps already recognise this and can therefore afford to act brazen in the face of constant demands to step up production. Oil consumers can do little to fight this situation in their individual capacity; they must form a band of their own to protect their joint interests.

Deal already

Time is running out fast on the possible Indo-US nuclear agreement and India must act decisively in favour of the deal. At the same time, we stand on the verge of losing a rare opportunity to ensure energy security for our country, as the deal is being blocked by narrow political interests, misgivings about the deal8217;s repercussions and unsustainable ideological viewpoints.

Critics of the deal need to realise that the world has changed much since the deal was first announced. International crude oil prices have ridden a strong upward spiral and are at an all time high. Little can be done to check the price rise for most goods, if the cost of energy to the industrial units manufacturing those goods is constantly rising. Nuclear energy could easily become a cheaper and abundant alternative for India8217;s industrial plants and thereby help curb inflation. The electricity price for both domestic and industrial usage can be brought down to an all time low if the deal comes through. Now more than ever, the Indo-US nuclear deal is vital not just to secure our energy security, but also to assure our economic growth.

Story continues below this ad

Fortunately, even the staunch opponents of the deal seem to realise deep within that India8217;s best national interests will be served by signing this deal. Many individuals cannot come to terms with the fact that a deal involving India and the US will actually benefit India more. However, we should not equate the deal with the India-US relationship, since it is nobody8217;s case that signing or not signing the deal will improve or spoil our relations with the US. Once this issue is resolved, we should make sure that domestic politics does not act as an impediment to India8217;s economic progress.

The writer is a Congress MP in the Rajya Sabha