THE FIRST ROUND-TABLE of Asian oil ministers that New Delhi hosted last week was a path-breaking initiative that sought to bring together buyers from the continent, accounting for 35 per cent of world oil consumption, and suppliers, who sell about 60 per cent of their output to the same region. With representatives from 11 countries — Japan, China, India and Korea among the buyers, and Saudi Arabia, Iran and Kuwait among the sellers — attending, this was one of the most high-profile meetings that discussed the subject of oil supply and pricing, outside of the Organisation of Petroleum Exporting Countries. The serious nature of the issues that were discussed, including the idea of an Asian marker for crude prices a la the Brent for Europe, and the fact that the participatants have agreed to meet annually, speaks volumes about the importance they attach to the round-table and its success. While the Petroleum Minister, Mr Mani Shankar Aiyar, can take justifiable pride in the success of what was essentially a personal initiative, the fact remains that there is a long way to go yet before his vision of a unified Asian market that gets its due from the oil cartel turns into a reality.

The most significant issue discussed at the meeting was, of course, that of an Asian marker for oil. The two major markers for world oil today are the West Texas Intermediate (WTI; for the US) and the Brent, which now determine the prices for Asian countries. Often, Asian countries pay a premium compared to European and North American buyers. The idea behind the demand for an Asian marker is to evolve a price benchmark that reflects the growing importance of Asia as a major consumer and the fact that it is fast becoming the engine for global growth, driven largely by the economies of China and India. While the proposition is indeed good, implementation may not be easy. There is no spot market for oil worth talking about among the Asian buyers, most of whose national oil companies have long-term contracts with the selling nations. If the WTI or the Brent are today accepted as global markers, it is largely because of the vibrant spot market trading that is predicated on their prices as benchmark. Therefore, the first step must be to evolve an active spot market for oil amongst the Asian countries.

India can show the way in this respect only by unshackling the national oil companies and encouraging them to hedge their bets actively and also sourcing a part of their demand from the spot market. With the threat of a parliamentary scrutiny or an adverse CAG comment ever alive, it is impossible to imagine how any of the oil companies will dare to move away from the system of long-term contracts. This is mainly why, despite the government granting them the freedom to hedge their purchases almost three years back, none has done so seriously. It would be futile to demand, on the one hand, the creation of an equitable market with the supplying countries and, on the other, not encourage the domestic oil companies to acquire the skills to play such a market.

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