The Hindu Business Line : Speculative froth and oil

Not for the first time the Finance Minister, Mr P. Chidambaram, has lashed out at oil producers and speculators for driving up prices to levels unwarranted by demand-supply forces, and thereby lopping a percentage point off India's GDP growth rate. Not for the first time have he or others in the Cabinet tried to persuade leaders of oil producing countries to restore prices to a more acceptable $40-50 a barrel. Mr Chidambaram's comments at the World Economic Forum in New Delhi would have had greater resonance had they come a couple of months ago for prices have since slid by almost $20 from the $78 peak in August. However, there is no mistaking the political significance of the other message delivered to an audience of global business leaders: The West having powered its development on cheap oil cannot now ask developing countries to smother their consumption curve and carbon emissions. But can such plaintive talk alone move markets?

Oil prices are still a wee too high for India's oil companies, straitjacketed as they are by high taxes and administered prices of diesel, petrol, kerosene and LPG, but the uncomfortable reality that Mr Chidambaram and consumers face is that OPEC, let alone the speculators, is not in any mood to allow prices to drop further; the cartel is contemplating a cut in output to shore up the price. The Finance Minister is right that there has been no dramatic change in the demand-supply equation for prices to have risen to such high levels. By the same token, oil consumers have effected no dramatic change in their usage pattern in recent months to unseat prices from their high perch. Global oil consumption is still rising, and the International Energy Agency projects that demand will grow 53 per cent between now and 2030, increasing the world's vulnerability to supply disruptions and price shocks, if governments do not implement policies that raise use-efficiencies and bring into greater play renewable energy sources.

India is still a marginal consumer of petroleum fuels with but a small influence on market prices. Yet, given the vital role petroleum energy will play in boosting domestic economic growth, the Government needs to get as much output it can from every barrel of oil it imports. The record in conservation or efficiency elevation is but sketchy. About 20 per cent of the country's diesel is consumed by the farms to run pumpsets when electricity should have been extended to farmers; petroleum-fuelled captive generators continue to support electricity grids that ought to work with coal, hydro or nuclear power; and the rail network, several times more energy efficient than the road, has not expanded fast enough to shoulder the nation's growing freight needs. Never mind the oil producers and speculators; if such policy failures are addressed, the burden of oil prices will lighten autonomously.