Finance ministers from the world’s richest nations expressed their concern over sky-high oil prices during a weekend meeting in Washington, DC, and warned that fuel costs could derail global economic growth.
Although initial reports suggest Hurricane Rita, which struck the United States Gulf coast early on Saturday, did not ravage the US oil industry as badly as some had feared, the industrialised countries of the Group of Seven (G7) said oil prices have become a mounting worry.
In extraordinary trading, New York’s main contract, light sweet crude for delivery in November, was down $1,17 at $63,02 per barrel at 11.42pm GMT on Sunday on the New York Mercantile Exchange after shedding more than $1,20 earlier in the day.
Despite lower prices on Sunday, the price of oil has doubled since early 2004 and tripled since 2002. Unrest in the Middle East, supply constraints and rising oil demand from China have stoked the price gains.
”The global economy, as a whole, continues to expand and the outlook is positive for further growth, supported by the containment of underlying price pressures. However, higher energy prices, growing global imbalances and rising protectionist pressures have increased the risks to the outlook,” G7 ministers said in a statement on Friday.
The G7 brings together Britain, Canada, France, Germany, Italy, Japan and the US. G7 finance ministers gathered in Washington this weekend for the annual meetings of the International Monetary Fund (IMF) and the World Bank.
The G7 statement followed swiftly on the heels of a warning from IMF chief Rodrigo Rato, who said on Thursday that rising oil prices have become a threat to the world economic growth.
”Oil prices have become certainly a threat to the world economy,” Rato said, adding that prices have soared not just because of demand ”but also because of supply constraints, especially in refinery capacity”.
The constraints are a ”worrisome sign regarding the future of world growth”, he noted.
Ahead of the meetings this weekend, IMF senior economist Raghuram Rajan warned last week: ”Higher oil prices are a clear and present danger.”
However, with limited oil production of its own, the G7 has only been able to issue calls for an expansion of global refining capacity and improved market transparency.
Debt wipe-out approved
Other major issues — particularly the crippling debt burden carried by the world’s most impoverished nations — distracted attention at weekend meetings that concluded on Sunday after both the IMF and the World Bank agreed in principle to wipe out $40-billion in debt owed by the planet’s poorest countries.
Policymakers representing the 184 member nations of the IMF and World Bank had come under mounting pressure to ease the crippling debt.
In a first phase, the initiative will provide multilateral debt cancellation worth about $40-billion to 18 nations, all but four of them in Africa.
”From concert stadiums to high-profile summits, people from rich and poor countries alike have been moved by the suffering we see in so many parts or the world,” World Bank president Paul Wolfowitz said after a one-day meeting in Washington, DC, of the bank’s policymaking committee.
”They have demanded action, and with this debt relief agreement they have it.”
The bank panel — known as the development committee — approved a debt cancellation plan drafted by the Group of Eight industrialised nations (the G7 and Russia) a day after the IMF took similar action.
”The [debt] agreement now carries the full weight of support of all member states of the IMF and the World Bank,” development committee chairperson and South African Minister of Finance Trevor Manuel said.
The decisions now go to the executive boards of the two institutions, where rejection is considered highly unlikely.
As the policymakers departed Washington on Sunday to their capitals around the globe, however, they know going forward that they have yet to find an antidote to surging oil prices. — Sapa-AFP