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21 Mar, 2012 13:18

War with Iran to cause 30% oil price shock – IMF

A sudden cut of oil flow from Iran may cause a surge of crude prices of up to 30 per cent, dealing a blow to the world economy, warns IMF chief Christine Lagarde.

The continuing standoff between Iran and the West may result in “serious consequences” for the world Lagarde, executive director of the International Monetary Fund, said Tuesday."Clearly it would be a shock to economies if there was a major shortage of exports of oil out of Iran, it would certainly drive up prices for a period of time," she told the media.The IMF chief estimates that a sudden disruption of oil flow from the world’s second-largest exporter may cause the price to surge by 20 to 30 per cent. Benchmark crude prices have risen 7 per cent this year alone, as traders monitor the mounting pressure on Iran.

US contemplates petroleum penalties

The tension was somewhat deflated after the US said it would exempt 10 European nations and Japan from penalties for trading oil with Iran. All of them sided with American sanctions against Tehran’s oil industry and took steps towards reducing import from the Islamic Republic.“We commend these countries for their actions and urge other nations that import oil from Iran to follow their example,” US Secretary of State Hillary Clinton said as the exemption was announced.At the same time the US has a list of 12 countries which failed to join the sanctions and thus may be targeted by American penalties for doing so. Among those are the largest buyers of Iranian oil China and India as well as US allies South Korea and Turkey.President Obama may order to cut off banks operating in these countries and involved in oil trade with Iran from the American financial system. They may still get a waiver if the US national interests require so or if they change their policies by June 28.The US issued sanctions against Iranian oil trade last year in a bid to stop uranium enrichment by Tehran. The West suspects that Tehran may be secretly trying to build a nuclear weapon, an accusation Iran denies.The campaign has resulted in surge of domestic prices in Iran and devaluation of its national currency, the rial. It also resulted in the rise of world oil prices, as nations following America’s suit were looking for alternative sources of oil.