G8 calls for oil output boost to ease economic threats


Posted at Jun 14 2008 05:37 PM | Updated as of Jun 15 2008 01:37 AM

Agence France-Presse

OSAKA - World finance chiefs warned on Saturday runaway oil prices could imperil global economic growth, calling on producers to open up the taps and tasking the IMF to investigate wild market swings.

The weakness of the dollar and the role of speculators in the latest oil shock were also in the spotlight during two-days of talks here between finance ministers from the Group of Eight rich nations.

High oil and food prices pose "a serious challenge to stable growth worldwide" and may worsen poverty and stoke global inflation, the G8 said.

US Treasury Secretary Henry Paulson said soaring energy costs were "a heavy burden" on the US economy.

"It brings with it the risk that this slowdown in our economy is going to be prolonged," he said.

The G8 -- Britain, Canada, France, Germany, Italy, Japan, Russia and the United States -- urged oil producing countries to hike production and to invest money to ensure they can pump out enough supply in the future.

They asked the International Monetary Fund to lead a probe into the recent spike in crude oil prices, amid signs of discord about whether action should be taken to curb investment flows into commodity markets.

Italy's Economy Minister Giulio Tremonti argued that surging oil prices were essentially due to speculation and said the G8 should deter such activity by forcing investors to pay higher deposits to play the commodity markets.

But Paulson insisted speculators should not be blamed for the fivefold jump in oil prices since 2003.

"All the evidence" points to tight supply and strong demand as the main cause, he said.

"I think there's a danger that if people say 'all this is speculators' then we won't do what we need to do. We don't want to misdiagnose the problem."

Other ministers said it was too hard to gauge the role of speculators.

"No one really knows the truth," admitted Japanese Finance Minister Fukushiro Nukaga.

World oil prices have been on a rollercoaster ride recently, soaring close to 140 dollars a barrel, up five-fold since 2003.

IMF chief Dominique Strauss-Kahn said tight demand and supply conditions were the key reason for soaring prices but other factors may also be at play.

"It's totally unclear so we need to have this study to answer this question," he said, adding that the fund would report back by October.

Currencies were also a hot topic at the G8 meeting amid signs of growing concern in Washington about the weakness of the dollar, although with central bank chiefs absent, they were not mentioned in the G8 statement.

Paulson reiterated Washington's long-standing policy that "a strong dollar is in our nation's interest," saying his country's solid economic fundamentals would support the currency in the long term.

Traders say that Washington appears to have been ratcheting up the rhetoric recently to talk up the US currency so as to keep a lid on inflation and limit the need for interest rate hikes that could stifle economic growth.

There has been speculation among currency traders that the G8 may consider a foray onto the market to prop up the dollar if it comes under renewed selling pressure, but Japan's Nukaga said the G8 did not discuss joint intervention.

Analysts say a weaker dollar has contributed to higher oil prices, but Paulson noted oil prices had "gone up dramatically in every currency."

The higher cost of fuel has led to protests worldwide, ranging from tens of thousands of truck drivers striking in Spain and Portugal, to street rallies throughout Asia over hikes in subsidized energy prices.

Protests over food prices meanwhile have included riots in Egypt, Haiti and other nations.

The ministers called for emergency assistance for poor countries, efforts to improve food supply and for an end to export restrictions and food subsidies.

The G8 also recognized the benefits of government-controlled sovereign wealth funds, whose growing financial power has stirred controversy. It encouraged them to work with the IMF to improve transparency.