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Iran Sanctions Give China Bargaining Power for Oil, IEA Says

Global sanctions against Iran have strengthened China’s bargaining position with the Persian Gulf state for oil purchases even as the Asian nation opposes trade restrictions, according to the International Energy Agency.

China’s first-quarter purchases of Iranian oil may slow to half of last year’s average rate of 550,000 barrels a day, because of a dispute over prices, the Paris-based adviser to oil-consuming nations said in a report today.

The U.S. and its allies are using economic and financial sanctions to curb Iran’s nuclear program, which they say has military objectives. Iran denies the claim.

Escalating sanctions over Iran’s nuclear program have posed difficulties for customers such as India to continue purchasing crude. The European Union, collectively the No. 2 importer of Iranian oil in the first half of 2011, last month approved a ban on imports set to take effect on July 1.

China said sanctions on Iran’s oil exports aren’t “constructive” and urged relevant parties to settle international disputes through dialog, the official Xinhua News Agency reported Jan. 26, citing comments from the Ministry of Foreign Affairs. The country is the biggest buyer of Iranian crude, according to the IEA.

Assistant Chinese Foreign Minister Ma Zhaoxu will visit Iran from Feb. 12 to 13 to discuss the dispute over the Gulf nation’s nuclear program, Foreign Ministry spokesman Liu Weimin said at a briefing in Beijing today. Ma was invited by Iran’s Supreme National Security Council, Liu said.

Unipec Supply

China International United Petroleum & Chemical Corp., the nation’s biggest oil trader, was negotiating a 2012 crude supply contract that was scheduled to be agreed on last year with National Iranian Oil Co., two people with knowledge of the talks said Jan. 10.

As much as 1 million barrels a day of Iran’s 2.6 million barrels a day of exports may be replaced by alternative supplies once the EU sanctions take effect, forcing Iran to place unsold supplies into floating storage or to shut in production in the second half of the year, according to the IEA.

While Iran has asked fellow members of the Organization of Petroleum Exporting Countries not to fill any gap created by the country’s loss of market share, Saudi Arabia, the world’s biggest crude exporter, has signaled it could increase production, the IEA said in its report. Japan, India and South Korea have boosted crude purchases from suppliers other than Iran, the agency said.

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