(EnergyAsia, March 22 2012, Thursday) — The International Monetary Fund (IMF) chief said Brent crude oil could surge 20% to 30% from its current level of US$125 a barrel if oil flows from Iran were disrupted in the event of conflict with the West.

Following her visit to China and India earlier this week, Christine Lagarde told reporters that the world economy would suffer “serious consequences” if there was a major and sudden cut-off of oil exports from Iran.

Ms Lagarde met with the top leaders of the two Asian giants when she attended the China Development Forum in Beijing on March 18 and participated in the IMF-sponsored conference, “China and India: Sustaining High Quality Growth”, in New Delhi on March 19 and 20.

In India, the IMF managing director met with Prime Minister Manmohan Singh, Finance Minister Pranab Mukherjee, Minister of Commerce and Industry Anand Sharma, Deputy Planning Commission Chairman Montek Singh Ahluwalia, Unique Identification Authority Chairman Nandan Nilekani, and other senior officials.

Ms Lagarde reported: “We exchanged views on a range of issues, particularly the unsettled global outlook, which has added to India’s domestic policy challenges. Our discussions focused on how to build investment in India and facilitate growth.

“The IMF supports the steps that the authorities have announced in the 2012/13 Budget to continue on the fiscal consolidation path and to increase allocations for capital and social spending, which will support stronger and more inclusive growth. Commitments to continue with tax reforms and streamline spending over the medium term are also welcome.

“As the government has indicated, India intends to build the momentum for reform. Indeed, we welcome the substantial decline in poverty in recent years, which demonstrates the benefits of policies also focused on more inclusive growth.

Apart from the oil threat, the IMF mentioned that Asia has to guard against fallout from the economic crisis in Europe.

Chinese Premier Wen Jiabao has reduced his country’s economic growth target for 2012 to 7.5% compared with more than 8% in recent years and made boosting consumer demand the year’s main priority, while India reported that its economy grew 6.1% in the final quarter of 2011, its slowest pace in two years.

The IMF noted that while China has followed a more traditional manufacturing- and export-led growth strategy, India’s growth has been driven by the services sector and reliance to a large extent on domestic demand.

“In emerging economies, the priority is to ensure a soft landing as domestic growth slows amid a deteriorating external environment and volatile capital flows,” according to the IMF’s economic surveillance note.

“There is scope to increase expenditure including, in some cases, social spending in economies where inflation pressure is expected to ease, fiscal positions are sound, and external surpluses are large (e.g., China). In those economies with relatively high inflation and public debt, policy space is more limited, warranting a more cautious stance toward policy easing (e.g., India).”