India on Sunday asked the oil-producing countries to increase supply to control the prices as the present global inflation could not be tolerated.
Finance Minister P Chidambaram who is in Jeddah to talk to Saudi Arabia authorities for finding a solution to the ongoing oil crisis said, "My presence in Jeddah emphasises the global nature of inflation. We cannot operate under these prices and oil-producing countries need to calm oil markets."
Talking to NDTV, Chidambaram said, "Saudis have assured that supply will not be a problem."
On their part the Saudi Oil Minister Ali-al Naimi said, "We have already increased our supplies substantially."
Chidambaram along with Petroleum Minister Murli Deora had left for Saudi Arabia on Saturday night as part of efforts to address the issue of spurt in global oil crisis, a development that pushed the inflation in India to a 13-year high of 11.05 per cent.
Wondering as to how oil prices have doubled from $70 a barrel from August 2007, Chidambaram said, "There is ample evidence that large financial institutions, pension funds, hedge funds etc have channelised billions of dollars -- nay, trillion of dollars -- into commodity investments and commodity derivatives."
It is the common knowledge that these financial transactions are unregulated and highly opaque, the finance minister, who accompanied Petroleum Minister Murli Deora to the meeting, said, adding the demand for oil generated by these funds is purely speculative.
As per the price band mechanism, proposed by Chidambaram, consuming countries will guarantee that oil prices will not fall below an agreed level and producing countries will guarantee that oil prices will not rise above a guaranteed level.
"In the band between these two levels, let prices be determined by market forces. This is the only way to shelter the world from volatility and unpredictability in oil prices," he said.
Asserting that India has rediscovered its inner strengths in the recent years and acquired the capacity to end poverty, the Finance Minister said, "I speak with great anguish because the goals that we have set for ourselves are in great peril (because of surging oil prices)."
Pointing out that high oil prices have improved the balance sheets of oil-producing nations and companies, Chidambaram also called upon the oil producers to fund capacity expansion.
"Fresh investments are not materialising perhaps because of anticipated fall in demand. This is plainly wrong. The cyclical behaviour of oil markets is amply established and we know that oil production provides attractive returns in the long run," he said