Oil shockwave hits G8

Courier Mail
Monday 9/6/2008 Page: 15

TOKYO: The US and Asia's four largest powers voiced "serious concern" yesterday about a record spike in oil prices but vowed to keep scaling back politically sensitive fuel subsidies. Oil prices, which have soared five-fold since 2003, posted their highest one-day gain of $US10.75 to close at a new record of $US138.54 in New York on Friday after hawkish remarks by an Israeli official on oil producer Iran.

Senior officials from the US, Japan, China, India and South Korea said in a joint statement after the Group of Eight industrial powers talks in Aomori, Japan, that they "share serious concerns" about the current level of oil prices. "These prices are unprecedented and against the interest of both consuming and producing countries. They pose a great burden particularly on resource-scarce developing countries," the statement said.

US Energy Secretary Samuel Bodman warned oil producers that it would do them no good if the US economy took a hit. "It's not good for producing nations to see the US struggling economically (as) they depend on us to be a significant engine in world economic activity," Mr Bodman said. Despite the political sensitivity, the joint statement called for a scaling down of fuel subsidies, saying it would "enhance energy efficiency" and lead to investment in alternative energy.

Developing economies tend to heavily subsidise fuel costs in a bid to ease the burden on the poorest members of society. India and Indonesia have recently been forced to hike prices amid soaring global crude-oil costs, triggering large anti-government demonstrations in the two countries. Japan's Energy Minister, Akira Amari, the chairman of the meeting, said that rising oil prices were "a major risk factor" for the world economy. Meeting with South Korea's minister Lee Youn-Ho. Mr Amari said he thought crude-oil prices were "abnormally high."

"We want to issue a message on this to the world," he said. Mr Lee added: "I don't think the oil prices are at normal levels either. It is fairly questionable whether the world economy will be able to develop further at this level of crude oil prices." Analysts said the sharp spike was a reaction to reported remarks by Israeli Deputy Prime Minister Shaul Mofaz on Iran, a major oil producer.

Mr Mofaz warned that the Jewish state would attack Iran if it continued its alleged nuclear weapons drive, although he stressed such an operation could only be conducted with US support.