China in talks with Iran to settle oil and gas debts

Problem arises from UN sanctions against Iran; China might pay the HK$233 billion billin yuan

PUBLISHED : Saturday, 02 November, 2013, 4:58am
UPDATED : Saturday, 02 November, 2013, 4:58am

China and Iran are in talks to resolve energy bills that Beijing has not been able to pay as a result of UN sanctions.

Chinese academics said the formalisation of payments in yuan could be a topic of discussion.

Iranian parliamentary Speaker Ali Larijani was in Beijing this week to raise the issue with the country's leaders, according to Chinese scholars and Iranian media reports. He met President Xi Jinping on Wednesday.

The Tehran Times on Tuesday cited the country's vice-president for planning and strategic supervision, Mohammad Baqer Nobakht, as saying that the oil and gas debts owed by China had reached €22 billion (HK$233 billion). Tehran has sought to offset the unpaid bills through barter - involving goods such as food and consumer products.

China is Iran's biggest energy buyer and trading partner. It has repeatedly opposed international sanctions against the country over its nuclear programme. Sanctions imposed by the United States have blocked US dollar-denominated transactions with Iran. The US dollar is the key currency used in international oil trading.

China - the world's biggest energy consumer - has bought more oil from Iran over the past few months, according to official statistics. Figures from the Chinese customs authorities showed that China imported 17.54 per cent more oil from Iran in August than the same period last year.

Larijani's trip to China is seen by analysts as a gesture to consolidate bilateral relations under the new leaderships in both countries. Official Chinese media reports on the visit did not mention discussions on energy bill payments.

Professor Yao Jide, an expert on China-Iran relations at Yunnan University, said trading Iranian energy in yuan was one of the options being studied.

"Authorities from both sides, including the Ministry of Commerce, as well as the Chinese oil companies are very likely looking into this," Yao said.

It has been reported that China began buying Iranian oil using yuan as early as last year. The professor said that those transactions, if confirmed, could only have been small-scale.

Yao said issues such as how to set the exchange rate, the location of transactions and how to avoid involving third parties were issues that needed to be ironed out in the discussions. He said a concrete plan could be rolled out by the end of next year.

But Yin Gang , a researcher with the Chinese Academy of Social Sciences, said sanctions could still affect purchases of oil made using yuan.

"The only solution to this problem is for Iran to behave itself so that the sanctions would be lifted eventually," he said.