Brown to Call for Deal to Stop Surge in Oil Prices at Saudi Summit

Gordon Brown will today put forward emergency and long-term packages to halt the rocketing rise in oil prices, warning the world is locked in "a zero sum game" in which neither oil producers nor consumers benefit.

Speaking at a hastily convened Saudi oil summit in Jeddah, the prime minister will call for a worldwide cut in subsidies for oil consumers and the lifting of restrictions on Gulf states investing in western energy capacity.

Brown's speech – and the accompanying 6,000-mile one-day round trip – is intended to put him in the vanguard of the international debate on oil prices. He is the only world leader at the summit attended by 35 countries and 15 oil company executives.

In the frenzied debate on the cause of the quadrupling of oil prices since 2000, Brown will put the blame "primarily on supply and demand issues", rather than speculation on the oil markets, which the Saudis and most other Opec countries see as the chief source of the problem.

The Opec president, Chakib Khelil, challenged Brown's view, opposing increased production to counter record oil costs, saying "the price is disconnected from fundamentals" of supply and demand.

"We believe that the market is in equilibrium. The price is disconnected from fundamentals. It is not a problem of supply," he said.

The Saudi emergency talks aimed at halting the soaring price of oil is seen as a high-risk venture because failure would convince the markets of further price rises this week. Light, sweet US crude oil futures closed at $134.62 on Friday, despite a 17% Chinese rise in petrol prices, the country's first rise since November.

The Saudis, the world's top oil exporters who are eager to protect 80 years' projected oil supply, do not want to take the blame for political and social tensions caused by the oil price shock, including in Muslim countries.

Under pressure from America and Europe, it increased production in May by 300,000 barrels a day, to the current 9.45m barrels a day. Oil minister Ali al-Naimi has said he will increase production by 2% to 200,000 barrels a day next month.

Saudi Arabia could produce 12.5m barrels a day by the end of 2009, but the Saudis fear over production could lead to a drop in value.

Brown will urge the oil markets to work more successfully, saying there needs to be "an end to the zero sum game where we hurt producers if we benefit consumers and vice versa."

He will say the third great oil shock in as many decades is having a severe impact on living standards worldwide.

Calling for "a greater commonality of interest between producers and consumers," he will put forward a four-point plan built around greater transparency in the market, including over future supplies, an increase in supply by the producers, an increase in non-oil based energy such as nuclear and renewables, and opportunities for Gulf states to use their sovereign wealth funds to invest in European and US energy interests such as wind farms and carbon capture.

The prime minister will steer clear of his recent more populist attacks on Opec, which is responsible for 40% of world oil production in deference to the Saudi decision to convene the summit at such short notice. Instead he will called for Gulf states to be given significantly more opportunities to recycle increased oil revenues - whether through sovereign wealth funds or directly into alternative energy investments in developed economies.He will say oil consuming economies should follow the UK by "offering genuine openness and partnership in our investment markets to those operating under transparent commercial principles".

He will say Britain is already involved in such discussions with the Abu Dhabi Investment Authority, the Qatari government and United Arab Emirates.

Brown hopes his new deal will help persaude some of the Gulf states to increase supply, or allow western investment in the Gulf to push up refinery capacity.

The initiative may also help to persuade a sceptical electorate that he is doing all he can to bring down petrol prices .

On Thursday the government will publish a consultation document on plans to produce 15 of the UK's energy from renewables.

Brown will say he hopes other countries will follow China's lead last week and move to eradicate subsidies so that energy prices are brought closer into line with their market prices.

He says subsidies are now worth $200bn (£101bn) a year and need to be brought down with international help for poorer countries trying to wean themselves off subsidies.

In his only direct call for increased production in his speech Brown will say: "All of us need credible future commitments on increased oil supply because even with further action we propose to tackle climate change demand for oil will continue to be strong over the medium term."

Brown will also suggest some technical changes to way the oil markets work including greater transparency so the demand for oil from China and India is included. He will also say he welcomes the study commissioned by the G8 industrialized nations from the IMF into whether oil speculators were responsible for the recent surge in oil and commodity prices, as well as their volatility.

The US energy secretary, Samuel W Bodman, said yesterday before the start of the summit that insufficient oil production was driving the soaring crude prices. Oil production has not kept up with increasing demand from developing countries including China and India, he said.

"In the absence of any additional crude supply, for every 1% of crude demand, we will expect a 20% increase in price in order to balance the market," he said.

But Saudi officials have argued that the market is sufficiently supplied and that market speculation - billions of dollars in financial investments in oil by investors hedging against a weakening US dollar - is the primary driving force behind rising prices.