The expected rise in the price of oil could (be a serious impact to industrialized nations and severely diminish the possibility to have an economy free of inflation.)
C seriously impact on industrialized nations and severely impede the possibility of having
E have a serious impact on industrialized nations and severely diminish the possibility of having
You are right, if in C 'impede' is replaced by 'diminish', C is a perfect answer. In choice C, 'impede' which means 'To retard or obstruct the progress of ' distorts the meaning of 'diminish' which means 'To make smaller or less '. This is the only reason that C is wrong.