If the flow of oil from Iran is cut, this may cause a surge in crude prices of up to 30%, dealing a serious blow to the world economy, warns IMF chief, Christine Lagarde.
Lagarde, executive director of the International Monetary Fund said on Tuesday that a sudden cut in oil supplies from Iran may cause a huge surge in the price of crude oil.
RT reports that the present standoff with Iran and sanctions imposed on that country by the West may cause "serious consequences" for the world economy, warns Lagarde.
"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 in New Delhi, wrapping up a two-day visit.
Lagarde estimates that a sudden disruption of oil flow from Iran, the world's second-largest exporter may cause prices to surge by 20 to 30%. This year alone, benchmark crude prices have already risen by 7%, as traders monitor mounting pressure on Iran.
The US has said it would exempt 10 European nations and also Japan from penalties for trading oil with Iran. All these countries have sided with American sanctions against Iran and have taken steps towards reducing import from the country.
“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.
On the other hand, the US has a list of 12 countries who have failed to join the sanctions, and these countries may be targeted by American penalties for doing so. These include China and India, as well as US allies South Korea and Turkey.
It is possible that President Obama may order a cut off of banks which are involved in the oil trade with Iran operating in these countries from the American financial system. But they may still get a waiver if it is in the US national interests, or should they change their policies by 28 June.
Sanctions against the Iranian oil trade were imposed last year in a bid to stop uranium enrichment in that country. While the Iranian country denies it, the West suspects that Tehran may be secretly attempting to build a nuclear weapon.
The sanctions have caused a surge in domestic prices in Iran, and also the devaluation of its national currency, the rial.
As countries fall in with America in the sanctions and seek alternative sources of oil, It is also causing a rise in world oil prices.