China defends Iran oil trade despite U.S. push

BEIJING (Reuters) – China gave no hint on Wednesday of giving ground to U.S. demands to curb Iran's oil revenues, rejecting Washington's sanctions on Tehran as overstepping even as Treasury Secretary Timothy Geithner lobbied for Beijing's support.

Geithner met Chinese Premier Wen Jiabao on Wednesday, before Wen's trip starting on Saturday to top oil supplier Saudi Arabia, whose output could be important if China turns elsewhere for crude it would otherwise buy from Iran.

"On economic growth, on financial stability around the world, on non-proliferation, we have what we view as a very strong, cooperative relationship with your government and we are looking forward to building on that," Geithner told Chinese Vice President Xi Jinping earlier in the day.

Geithner is touring Asia to muster support for U.S. sanctions on oil revenues flowing to Tehran, which Western governments say wants to develop the means to make nuclear weapons. Iran says its nuclear program is for civilian uses, not weapons proliferation.

A U.S. official confirmed to Reuters that Geithner had raised Iran in his meetings in Beijing.

President Barack Obama authorized a law on New Year's Eve imposing fresh sanctions on financial institutions that deal with Iran's central bank, its main clearing house for oil payments. That will make it difficult to pay for Iranian oil.

Beijing is crucial to Washington's pressure on Iran: China is Iran's biggest oil customer, and has long argued that sanctions will not defuse the nuclear dispute.

China faces pressure to go along with the U.S. sanctions by cutting what it pays for Iranian oil, if not the volume it buys.

But China made it clear that, whatever the commercial or political calculations driving ups and downs in its crude orders from Iran, it rejects in principle unilateral U.S. sanctions.

"Iran is also an extremely big oil supplier to China, and we hope that China's oil imports won't be affected, because this is needed for our development," Chinese Vice Foreign Minister Zhai Jun told a news conference in answer to a question about whether Beijing could curtail crude from Iran under U.S. pressure.

"We oppose applying pressure and sanctions, because these approaches won't solve the problems. They never have," Zhai told the briefing about Wen's six-day visit to Saudi Arabia, the United Arab Emirates and Qatar.

"We hope that these unilateral sanctions will not affect China's interests."

China has backed U.N. Security Council resolutions calling on Iran to halt uranium enrichment activities, while working to ensure its energy ties are not threatened. As a permanent member of the council, China wields a veto.

But it has said the United States and European Union should not impose sanctions beyond the U.N. resolutions.

The European Union is already committed to a ban on Iranian crude, but the United States may face a tougher sell with China, Japan or India, the top three buyers of Iranian crude by country.

Geithner heads to Tokyo after Beijing.

China's Foreign Ministry spokesman Liu Weimin repeated the country's longstanding defense of oil and trade ties with Iran.

"China is a major developing country, and it has reasonable demand for energy," Liu said at a regular news briefing.

"It is unreasonable for a country to impose its domestic laws as overriding international law and to demand that other countries enforce it. So China believes that normal energy cooperation and reasonable demand are unrelated to the Iran nuclear issue and should not be affected," Liu said.

RECENT REDUCTIONS

China has nonetheless reduced crude purchases for January and February as it disputes contract pricing terms with the world's fifth-largest crude exporter and member of OPEC.

Japan will consider cutting Iranian oil purchases to secure a waiver from the new U.S. sanctions, a government source said. Japan has also asked Saudi Arabia and the United Arab Emirates to supply it with more oil.

South Korea is also considering alternative supplies in case the U.S. sanctions cut off Iranian shipments.

A boycott by other oil customers could potentially allow China to buy Iranian crude at a discount, thus reducing its payments to Tehran without forcing it to buy additional oil at a premium on world spot markets.

Zhai, the Chinese Vice Foreign Minister, said it was up to his nation's oil companies to decide where they bought their crude. China is Iran's largest oil customer and takes around a fifth of its crude exports.

"As for oil imports, and whether it's a bit more or a bit less from Saudi Arabia, or whether it's a little more or less from Iran, that's totally based on China's economic needs and on market demand and supply," he said. "That's not up to me."

Saudi Arabia is already China's top international source of crude oil, and Angola and Iran were the second- and third-biggest suppliers.

In remarks to Geithner made in the presence of reporters, China's Premier Wen indicated his government wants stable ties with Washington, despite friction over Iran and other issues.

"Somehow, I always believe that when it comes to China and the United States, dialogue works better than confrontation and cooperation works better than containment," said Wen.

(Editing by Neil Fullick)