Subsidies in China, India, Mideast 'are pushing prices higher'

The more than $50 billion (Dh183.5bn) in annual subsidies that China, India and the Middle Eastern countries are providing for oil prices in their internal markets will increase petroleum consumption and push world oil prices up further, according to the International Energy Agency (IEA).

Fatih Birol, Chief Economist at the IEA, warned that these three areas would keep pushing the demand for oil due to their increasing economic growth and population and the spiralling domestic consumption.

"The global energy sector is facing a hectic period and producer and consumer countries should co-operate to control the volatile oil market. Producing countries need to promote their investments in oil exploration to increase production. Consuming countries should rationalise consumption of oil products. We estimate that China, India and the Middle East region are subsidising their energy sectors by $50bn annually and this is not encouraging the growing population to rationalise consumption," Birol said during a seminar on the prospects of global energy economics, organised by the Emirates International Association for Energy Economics.

"The three regions were also responsible for 80 per cent of the growth in oil demand during the last three years and this growth will continue in the near future," he said.

Birol also predicted that the Middle East region would invest $2 trillion by 2030 to expand its energy sector. "The oil sector in the Middle East needs $1trn investments by 2030. Another trillion is needed to expand gas production and electricity and water facilities in the region."

Birol highlighted what he called the new world energy order, which will prevail in the energy sector during the next two decades.

"China, India and the Middle East were the main drivers of oil demand during the past three years, replacing the demand from the United States and Europe. By 2010, China will be the world's largest oil consuming country," he added.

Hassan Qabazard, Director of Opec's research division, said that the current high oil prices have no fundamental reason behind them. "According to Opec estimates, there was a positive balance in the oil markets of more than 800,000 barrels per day in extra supplies. The real issue is that speculations in paper markets are increasing the demand on fears of tight supply.

"Oil supplies in world markets are exceeding the demand and Opec countries are ensuring the security of supplies. We just saw Saudi Arabia increasing production by 300,000 barrels per day. The UAE has also announced plans to expand its production capacities," Qabazard said.


The United Arab Emirates, Opec's third-largest oil producer, is prepared to raise production if required by the market.

"The UAE is willing and well-prepared, if the market requires, to meet our responsibilities," Ali Al Yabhouni, the UAE's governor to the Organisation of Petroleum Exporting Countries, told reporters. "We have to see if there is a demand, and definitely, we can meet that demand."

Saudi Arabia, Opec's biggest producer, earlier this month said it would boost production by 300,000 barrels a day to meet demand from its customers.

Pressure has increased on Opec, which pumps more than 40 per cent of the world's oil, to increase output as record crude prices threaten economic growth.