Iran Looms Over China In Mideast

WSJ — Chinese Premier Wen Jiabao's visit to the Middle East, which begins on Saturday, is intended to boost energy ties with countries that are key oil exporters as well as U.S. partners, while the U.S. puts pressure on Beijing to scale back its imports of Iranian crude.

Mr. Wen's six-day visit to Saudi Arabia, the United Arab Emirates and Qatar comes as Beijing attempts to diversify its sources of imported oil. Saudi Arabia is the world's largest exporter of crude oil, while Qatar is the world's largest producer of liquefied natural gas.

Underscoring those nations' role as major exporters, the trip comes as senior leaders from Japan and South Korea are racing to shore up their energy supplies in the face of new U.S. sanctions.

In a largely symbolic move ahead of Mr. Wen's visit, Washington on Thursday accused Zhuhai Zhenrong Co. of brokering the delivery of $500 million of gasoline to Iran between July 2010 and January 2011, a violation of earlier sanctions. Zhuhai Zhenrong as a result is barred from receiving U.S. export licenses, financing from the U.S. Export-Import Bank and loans of more than $10 million from U.S. financial institutions.

The company—China's largest importer of Iranian crude oil by volume—doesn't appear to have any U.S. assets, so the U.S. accusations will likely have little impact. Zhuhai Zhenrong on Friday denied the allegations. "We never exported any gasoline to Iran," said Zheng Mei, a company spokeswoman.

Japanese Prime Minister Yoshihiko Noda said Friday that Tokyo will hold talks with U.S. officials before deciding on cuts in its crude oil imports from Iran, backing down from earlier comments by Finance Minister Jun Azumi that Japan was ready to do so immediately.

Mr. Azumi, who had told visiting U.S. Treasury Secretary Timothy Geithner on Thursday that Japan wanted to further reduce its 10% dependency on Iranian imports "as soon as possible in a planned manner," also appeared to soften his stance, saying Friday that it is too early to say when and by how much Japan will reduce Iranian oil imports

During a trip to the Middle East this week, Japan's foreign minister called on major oil producers including Saudi Arabia and the UAE to increase production.

Separately, South Korea's prime minister is visiting Oman and the UAE from Friday.

In Beijing earlier in the week, Mr. Geithner called on China to dramatically reduce crude purchases from Iran. Chinese officials have previously opposed U.S. unilateral sanctions against Iran.

A front-page commentary in the overseas edition of the People's Daily newspaper on Thursday said China wouldn't "blindly follow the U.S.'s steps" unless the Iran issue was taken up as a U.N. resolution.

Commentaries in don't always reflect wider government thinking, though the the People's Daily is an important propaganda channel.

Analysts said Mr. Wen could face pressure from U.S. allies in the region, including Saudi Arabia, over Beijing's opposition to U.S. economic sanctions against Tehran. U.S. sanctions target Iran's nuclear program, which Saudi Arabia views as a threat to its national security.

Whether China is willing to cooperate with U.S. sanctions could partly depend on how confident it feels others in the region are willing to increasing their own oil output, according to analysts.

U.S. officials have warned that it is more important to watch what China does, rather than listen to what it says.

During Mr. Wen's trip, the region's oil producers could reassure Beijing that they would help reduce volatility and "make the additional supplies available to China or to the market in the event that a lot of Iranian oil ends up being taken off the market," said Erica Downs, a China energy-policy expert at the Brookings Institution in Washington.

The visit to Saudi Arabia is the first in 20 years by a Chinese premier. Mr. Wen may attend the final signing between China Petrochemical Corp., or Sinopec Group, and Saudi Arabian Oil Co. to build a refinery in Yanbu on the Red Sea coast, a Chinese Foreign Ministry official said this week.

The Sinopec-Aramco refinery is one of at least two energy deals expected to be signed during Mr. Wen's visit, China's Vice Foreign Minister Zhai Jun told reporters earlier this week, without elaborating.

At a Foreign Ministry news briefing on Thursday, spokesman Liu Weimin declined to comment on whether China would press Saudi Arabia or others to increase oil production.

Mr. Wen won't be visiting Iran, though U.S. pressure over its nuclear program is likely to loom over his trip. Iran is a mainstay oil supplier to East Asian countries such as China, South Korea and Japan. Iran is China's third-largest supplier of crude, shipping it about 556,000 barrels a day, or about 11% of China's total crude imports.

In addition to pressure from U.S. sanctions against Iran, there is growing concern over shipping fuel through the Strait of Hormuz. Tehran has warned recently that it might try to block the narrow strait, a vital corridor through which much of the world's crude travels.

It's unclear whether U.S. allies in the Middle East would be willing to increase oil production to make up for potentially reduced purchases from Iran. However, U.S. officials in August 2009 told Saudi Arabia's oil minister that they didn't oppose some Saudi oil replacing China's imports from Iran, according to a cable released by WikiLeaks. "This would have the welcome side impact of reducing Iranian leverage over China," the cable read.

China's crude imports from Saudi Arabia have steadily increased in recent years. In the first 11 months of 2011, Saudi Arabia exported 45.5 million metric tons, or about one million barrels a day, of crude to China, up almost 13% from a year earlier, according to China's General Administration of Customs.

Meanwhile, Qatar is China's second-largest supplier of LNG after Australia. Between January and November, Qatar exported about 1.8 million tons to China, up 76% from a year earlier, customs data show.
—William Kazer
contributed to this article.

Write to Brian Spegele at [email protected] and Wayne Ma at [email protected]