Speaking to Arab News, Jaipal Reddy said as a result of the new charter putting in place a robust institutional framework, the IEF will emerge as a stronger and more dynamic institution for facilitating global energy dialogue.
“As the world’s fourth largest oil consumer and as an emerging economy growing at more than 8 percent per year, we will play a meaningful role to promote better understanding and cooperation between the producing and consuming countries,” he said.
He felt that given the dual role that crude oil now plays both as a physical commodity and a financial asset, “we need to improve our understanding of the inter-linkages between the physical and financial markets if we are to address the issues of price volatility and price discovery in the oil markets.”
He said oil prices needed to be regulated.
“One thing is certain, the price discovery of such a vital and finite resource as oil cannot be left entirely unregulated, whether in the commodity derivatives market or the financial markets,” he said and pointed out that most developing economies faced huge economic hardships during the unprecedented oil price rise in June 2008 when international oil prices exceeded $145 per barrel.
According to Reddy, higher oil prices lead to inflation in an emerging economy like India.
“They lead to a fall in tax revenues and a huge increase in budget deficit, which then drives interest rates up,” he said.
“An oil price rise typically leads to upward pressure on nominal wage levels. Net oil importing countries such as India normally experience deterioration in their balance of payments, putting downward pressure on exchange rates. As a result, imports become more expensive and exports less valuable, leading to a drop in real national income. All these call for appropriate policy responses.”
Reddy said as an emerging economy, India would support further initiatives by the IEF and other international organizations for putting in place suitable regulatory mechanisms to prevent a recurrence of 2008.