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 world’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 — 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 China’s oil consumption growing at a rate of 7.5 percent annually and India’s at 5.5 percent. In comparison, oil demand in developed countries is expected to grow only 1 percent.

... contd.