The communique of the finance ministers and central bankers from the meeting of the Group of Seven nations in London last Friday is clearly a counter response to the Organization of Petroleum Exporting Countries, whose president noted recently that the world economy was able to grow very fast in 2004 with high oil prices and that such trends showed that $50 -a-barrel oil or even $60 oil was an acceptable price for both consuming countries and oil producing countries.

The G-7 ministers noted that imbalances remain, and stated in regard to oil prices that “market transparency and data integrity is key to the smooth operation of markets.” The reference to markets may be a pointed reminder to OPEC that the forces that drive the price of oil are more likely to be settled in Western markets like New York – home to the New York Mercantile Exchange (Nymex) where traders’ perceptions of supply and demand rule the day – rather than at cartel meetings in Vienna. However, it will take more than a few words in a communique to counterbalance the rising power of OPEC to hold prices high or even to increase them beyond levels that will be easily absorbed by the world’s consuming nations. OPEC seems bent on perpetuating limitations on oil supplies both in the short and long term by limiting investment in expanding its own producible resources.

Some among the G-7, notably Britain, have been considering advocating a tougher stance on OPEC’s cartel power. One option is to revisit the “rules of the game” where energy trade and investment terms are better scrutinized and consuming countries press for more openness for investment in the energy sector, much the way global trade in manufacturing and financial services is today. OPEC aside, open investment climates in Mexico and Russia alone would go a long way to addressing the imbalance between rising energy demand and constrained supply.

Another option, alluded to in the G-7 communique, is to make serious joint efforts to show OPEC that consuming countries will be taking steps to reduce oil demand. Europe and Japan already have successful programs to lower energy demand through a combination of taxes and strong government support for alternative energy technologies – in the automotive sector in the case of Japan, and in renewable energy in the case of the E.U. The trick now would be to build on these examples by drawing in more consuming countries in a more concerted fashion, including the most important ones – America and China.

America’s rising oil imports alone – which rose from 6.79 million b/d in 1991 to 14.5 million b/d today – have accounted for over one-third of the increase in oil traded worldwide over the past 10 years and over 50% of OPEC’s output gains over the same period. The outlook is that China will increasingly follow in America’s footsteps, with Chinese oil imports rising from around 3 million barrels a day currently to over 7 million b/d by the next decade.

The E.U. is likely to challenge American leadership in this area, should America continue to respond to parochial domestic pressures rather than the big picture where energy policy is concerned. And, the E.U. might find friendly correspondents in “blue” states like California and New York, which are increasingly going their own way on environmental and energy policy. OPEC, at its January meeting, laid a clear marker for higher consumer prices, the counter to which is more efficient automobiles. American automobile manufacturers have temporarily hidden behind their government, but perhaps this strategy will not work for as long as they think.