Saudi Arabia's decision to host a summit of major oil producing and consuming countries was to send a message that they were concerned about high international oil prices - hovering around 140 dollars per barrel on the eve of the summit - and the associated economic malaise that was affecting the world, and specifically the poor countries.
The summit brought the major players operating in the oil sector at one table to assess the reasons behind the rise in oil prices that began in July last year and continues unabated till today, and to plan measures to combat the price rise.
Amidst increasing US pressure, a key long term ally of the Kingdom, the Saudis announced a rise in output if the price of oil continued to escalate. However there was a rider: oil production will rise if the market needs it. This was considered a pledge vague enough for speculators to predict higher prices in the immediate future.
Markedly different diagnoses by the oil consuming and oil producing nations of what constitutes the main reason for the oil price rise has led to different prescriptions. The oil producing nations, including the Saudis, argue that the fault lies with speculators as well as the declining dollar. World oil demand was seen at 86.6 million barrels per day for the first quarter of 2008, while world oil supply in this quarter was at 87.2 million barrels per day, according to data from the International Energy Agency.
This lends credence to the Saudi view. "Part of why the Saudis want to raise production, even if they know there is no real demand for it, is to prove to the sceptics that they do have the capacity to go higher," argued Kate Dourian, Middle East editor at Platts.
The oil consuming nations particularly the US and the UK strongly disagree. They allege that there is no evidence to support the Saudi view and maintain that supply has not kept pace with an increase in demand - an increase that is attributed to the new emerging economic giants China and India as well as an increase in demand for oil by the Middle East.
The US refers to its trading data as well as data from its government agencies indicating that hedge fund managers and speculators have reduced bets on higher oil prices by 80 percent since July last year when prices began to rise sharply and crude futures rose to record highs. And yet this view contradicts the speculators prediction post-summit that the price of oil will rise to 150 dollars per barrel.
Analysts argue that the incumbent US administration's insistence that the problem lies with the oil producers is a reflection of its support for the US oil giants who do not want their profits to be curtailed. It is relevant to note that the five largest US oil companies earned $36 billion during the first three months of 2008.
This view, however, is not shared by the Democrats who want to levy a windfall profits tax against the five largest US oil companies and rescind $17 billion in tax breaks the companies expect to enjoy over the next decade. Needless to say the Republicans in the Senate are expected to block any such move.
However, the summit did come up with a few interesting proposals: a decision announced by Saudi Arabia's King Abdullah to support soft loans of 500 million dollars for an energy-for-the-poor initiative. He also urged the World Bank to support the Saudi initiative - a call unlikely to be heeded as the World Bank's President, an appointee of the US administration, has traditionally not supported subsidies on any product.
The announcement by the Saudi King also explains why the recent trip by Prime Minister Gilani as well as the PPP co-chairman Asif Ali Zardari to Saudi Arabia seeking the Saudi Oil Facility failed: Saudi Arabia does not wish to compromise on its commitments to other poor nations with respect to rising energy prices.
British Prime Minister Gordon Brown said he hoped oil producers would ease foreign access restrictions to their oil fields in exchange for easier investing in the energy assets of other countries.
While many would argue that this would guarantee that the major energy players in the West remain strong in the field yet this also highlights the need to invest in alternate energy sources - the need of the hour. Pakistan too must begin to explore such possibilities through wind and solar powered electricity as well as focus on the quickest and easiest way to access energy supplies, which remains Iran-Pakistan-India pipeline.
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