Oil tanks are seen at a Sinopec plant in Hefei, Anhui province, in this file picture taken May 31, 2009. Chinese refining giant Sinopec Corp, the biggest buyer of Iranian oil, has no plans to raise its Iranian crude imports for the rest of 2012 so as to avoid falling foul of tough U.S. sanctions on Tehran's oil trade, a senior Chinese oil executive said. To match Exclusive IRAN-OIL/SINOPEC REUTERS/Jianan Yu/Files (CHINA - Tags: ENERGY BUSINESS POLITICS CRIME LAW)

Chen Aizhu Beijing

CHINESE refiner Sinopec had turned down offers of bargain Iranian crude and would cut imports by up to a fifth this year, a senior Chinese oil executive said on Tuesday, insisting that ties with the US were more important than cut-price oil as the West squeezes Tehran over its nuclear programme.

On Monday, the US government added India and South Korea, but not China, to a list of countries exempt from an embargo that begins on June 28, noting their significant cuts in oil imports from Iran. The sanctions will cut companies off from the US financial system.

Washington aims to choke off Tehran’s oil revenue and force a halt to nuclear development it believes is aimed at making weapons. Iran says its nuclear programme is for civilian energy purposes.

With just less than three weeks to go until EU sanctions against Iran’s oil trade, which will effectively cut off tanker insurance, major Asian buyers of Iranian crude are still scrambling for a solution to keep the oil flowing.

EU firms will be banned from insuring tankers carrying Iranian crude from July 1 and, as European insurers cover most of the world’s tankers, Asian importers in China, India, Japan and South Korea have struggled to find alternative insurance.

The Chinese official said the insurance ban would not be a problem for China, which alone buys as much as a fifth of Iran’s crude exports.

“So long as China wants to solve this problem, there must be a way. It won’t be a difficult issue. We are fully capable of sorting it out,” said the official, without going into how importers would continue bringing in Iranian oil.

India’s state-owned refiners would halt planned imports of 173 000 barrels a day from Iran when the EU sanctions took effect unless the government allowed them to use insurance and freight arranged by Tehran, sources said, and Japan’s government made the first move towards sovereign insurance, submitting a special bill to parliament to allow it to insure Iranian crude imports.

Government sources in South Korea have said that Seoul would simply stop buying Iranian crude from July, and a foreign ministry spokesman told a briefing on Tuesday that the government had given no consideration to providing state guarantees on oil imports.

On Tuesday Turkey said that it had started talks with Saudi Arabia on long-term crude purchases. A source at the country’s only refiner said it had steeply cut Iranian oil imports in May and June.

Turkey, the fifth-largest buyer of Iranian oil in 2011, taking 7 percent of Iran’s crude exports, pledged in March to cut such imports by 20 percent and was among the seven countries added to Washington’s list of those granted a waiver from sanctions on Monday.

The four big Asian buyers have cut Iranian imports by about a fifth from the 1.45 million barrels a day they bought a year ago. The cuts and threat of sanctions have helped drain Iran’s oil revenues by an estimated $10 billion (R84.2bn) so far this year.

China opposes any unilateral sanctions on another country and says it has to buy Iranian crude to meet its energy needs.

“We believe the crude oil trade between Iran and China is completely legal and fair. We have already made clear our position to the US side on this,” foreign ministry spokesman Liu Weimin said at a regular briefing on Tuesday.

While China made big cuts in first-quarter imports from Iran, the US is wary that Beijing might find it difficult to resist a bargain if Tehran tries to sell crude it can no longer export to other buyers later this year. Sinopec had already resisted such offers, said the Beijing-based official who has knowledge of the refiner’s trading operations.

“The Iranians have made some offers, but we have turned them down,” the official said, declining to elaborate. “The economic benefits of filling some discounted Iranian oil into the national oil reserves would be too small a consideration for the state. The key concern for the Chinese government would be China-US relations.”

China is the only one of Iran’s four major Asian oil buyers – the others are India, Japan and South Korea – that could still face penalties from the US once sanctions kick in.

Singapore, a major blender of fuel, including some from Iran, said that it imported no Iranian crude in May and was in talks with the US about getting an exemption from sanctions. The government, which normally has a hands-off approach to the oil trade, had stepped in to make sure its banks and finance houses were not locked out of the US system, sources said.

China is Iran’s top trade partner, and Beijing has publicly criticised sanctions against Tehran outside the framework of the UN. Still, China’s state-owned energy giants have made big investments in the US, perhaps making them more mindful of sanctions.

China is the second-largest oil consumer and is building up strategic storage across the country to deal with any surprise supply outages. Expectation in the oil market has been that sooner or later, Beijing would become Iran’s buyer of last resort and take the crude into its tanks.

But Sinopec had set its 2012 target for Iranian crude at 400 000 to 420 000 barrels a day, 16 to 20 percent below last year’s 500 000 barrels, the official said.

Sinopec more than halved its Iranian crude imports in the first quarter as it tussled with Tehran over the terms of its annual oil purchasing contract, industry sources said.

The 16 to 20 percent cut detailed by the official for the full year was a little more than the 14 percent annualised cut Reuters estimated after those contract disputes ended and Sinopec imports started to recover in April.

China bought 27.76 million tons, or 555 000 barrels a day, of Iranian oil last year, according to official Chinese customs data. – Reuters