From Burma to Beijing: Asia's sensitive petrol politics

China's announcement Thursday that it will raise the price of fuel risks angering its poorest citizens. Fuel prices have sparked unrest in several Asian nations.

from the November 2, 2007 edition

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In the meantime, Ms. Mongia says microprojects using renewable energy such as hydroelectric and solar offer the best hope for rural communities who are bypassed by the national grid.

"The market can't deliver at a price that they can afford, but microprojects can deliver," she says. The UNDP report also recommended creating a regional oil fund that can support poor countries during periods of high prices, as well as invest in alternative energy.

Asian demand its own worst enemy

The paradox, say analysts, is that Asia, led by fast-growing China and India, is the region most responsible for driving the oil market to its current heights. Asian countries' insatiable demand for oil to power their export-oriented expansion has been outpacing supply, partly because governments had been tacking on high subsidies to keep growth robust. But few expect tanker deliveries to Asia to slow, despite the pain of higher import bills.

"A lot of the increase in demand [for oil] is coming from Asia, particularly China and India … and they should continue to account for a big share of growth in global demand, just as they account for a big share of economic growth," says David Cohen, a regional economist at Action Economics in Singapore.

While the US remains the world's largest oil consumer, Asia's dependence on export-led manufacturing means it uses more oil per unit of GDP than the service-oriented US.

China currently consumes 7.6 million barrels of oil a day, or 9 percent of world output, according to the International Energy Agency. By comparison, a decade ago, China's daily oil intake was under 4 million barrels.

China's cut in fuel subsidies pushes up pump prices towards $3 a gallon, in the same ballpark as what US consumers are currently facing, but still far below European prices. Given the burgeoning problems of emissions and congestion in Chinese cities, higher prices could deter would-be car owners and depress fuel consumption, which in turn would ease pollution.

But that would run against the interests of China's government and of US and other foreign automakers who have invested heavily in China, says David Zweig, a social scientist at Hong Kong's University of Science and Technology. "The best would be if fewer people bought cars, but that's not what the Chinese government wants. Cars are the driving force in the Chinese economy," he says.

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