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'Oil price hike may trigger global recession'

business Updated: Jun 08, 2008 16:04 IST
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The world's top energy consumers must act quickly to control soaring oil prices before they trigger a global recession, Japan's energy chief urged colleagues from leading industrialised countries on Sunday.

The Group of Eight rich nations met in northern Japan with representatives from China, India and South Korea to discuss oil and gas markets, energy investment, energy security and climate change amid deepening concerns about the world economy.

Oil prices made their biggest single-day surge on Friday, soaring $11 to $138.54 on the New York Mercantile Exchange, an 8 percent increase. On the same day, the United States announced a rise in unemployment.

"The situation regarding energy prices is becoming extremely challenging," Akira Amari, Japan's trade and energy minister, warned his counterparts on Sunday. "If left unaddressed, it may well cause a recession in the global economy."

Five top energy consumers, he United States, China, Japan, South Korea and India, urged oil producers on Saturday to boost output to meet growing demand, while pledging to develop clean energy alternatives and increase efficiency.

World oil production has stalled at about 85 million barrels a day since 2005, while global economic growth, boosted by spectacular surges in China and India, has pushed demand to unprecedented levels.

Amari called for a strong message ahead of the G-8 leaders summit in Tokyo, Japan, in July. The 11 nations gathered in Aomori account for 65 per cent of the world's energy consumption and emissions of greenhouse gases.

"What actions we take to address the challenges that we face will have an extremely important effect in solving the global energy issue," he said.

It was unclear, however, what impact consumers will have without action by producers. The current president of the Organization of Petroleum Exporting Countries, Chakib Khelil, has said that the cartel will make no new decision on production levels until its September 9 meeting in Vienna.

The five nations meeting in Japan on Saturday agreed that the sharp surge in oil prices was a menace to the world economy and more petroleum should be produced to meet rising demand. They argued that the unprecedented prices were against the interests of both producers and consumers, and imposed a "heavy burden" on developing countries.

The ministers also vowed to diversify their sources of energy, invest in alternative and renewable fuels, ramp up cooperation in strategic oil stocks in case of a supply shortage, and improve the quality of data on production and inventories available to markets. The group, however, diverged over oil subsidies. The International Energy Agency has estimated that oil subsidies in China, India and the Middle East totaled about $55 billion in 2007.

The United States urged countries such as China to lower oil supports, which buoy demand, while poorer developing nations said removing subsidies could trigger political and economic unrest. Even wealthier nations can feel the need to shield consumers from skyrocketing prices. South Korea on Sunday unveiled a 10.49 trillion won ($10.3 billion) plan to help ease the burden of high oil prices on low-income consumers and self-owned businesses. The plan includes income tax rebates for workers and self-owned businesses, a statement released by the finance ministry said. The government will also provide oil subsidies to low-income individuals, it said.

The measures are temporary and will be in effect until June next year, the statement said.

India is also struggling with subsidies. The government on Wednesday hiked gasoline and diesel prices, triggering protests by angry consumers who blocked rail tracks and roads and shut down businesses.

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