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Geithner seeks Chinese support on Iran sanctions

U.S. Treasury Secretary Timothy Geithner chats with Chinese Vice Premier Wang Qishan before a dinner at the Diaoyutai State Guesthouse in Be
U.S. Treasury Secretary Timothy Geithner chats with Chinese Vice Premier Wang Qishan before a dinner at the Diaoyutai State Guesthouse in Be

By Lucy Hornby

BEIJING (Reuters) - Treasury Secretary Timothy Geithner is making Washington's case for stricter sanctions on Iran during a visit this week to China, the largest consumer of Iranian oil.

His trip is the latest step in accelerating U.S. efforts to stem Iran's flow of oil revenue and force it to abandon a suspected nuclear weapons program -- all while avoiding a spike in crude prices that could threaten the global economy.

For China, the challenge is to balance its commitments to Iran with its desire to be viewed as a cooperative partner by the United States.

"I think the key here is to try to isolate China. If the U.S. can effectively get Japan -- but more importantly Russia -- on side, then China will feel a lot of pressure to join onto any U.S.-led multilateral sanctions," said John Lee at the Centre for International Security Studies at the University of Sydney.

"If it's just a bilateral sanction between Geithner and his counterparts, then I think Washington will achieve very little this week," he told Reuters Insider TV.

U.S. President Barack Obama recently authorized a law imposing sanctions on financial institutions that deal with Iran's central bank, its main clearinghouse for oil exports.

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.

It has criticized the United States and European Union for imposing separate sanctions on Iran and said they should take no steps reaching beyond the U.N. resolutions.

Geithner was greeted by vice premier Wang Qishan, who oversees the Chinese economy, during a meeting on Tuesday at China's Diaoyutai state guesthouse. He is to have back-to-back meetings on Wednesday with Chinese Premier Wen Jiabao and future Chinese leaders Xi Jinping and Li Keqiang.

Wang noted "a positive working relationship" between the United States and China, adding: "We are also having important cooperation in the multilateral and global arena in the areas of economy, finance, trade policies and also G-20 related affairs."

Geithner responded: "As you said, China and the United States share so many important interests and among those are increasing our cooperation on global economic issues."

DISPUTE

Geithner will also help hammer out the agenda for Xi's trip to the United States and for a bilateral summit later this spring. He will then go to Japan.

Wen will visit three key Middle Eastern oil and gas suppliers -- Saudi Arabia, the United Arab Emirates and Qatar -- from the weekend amid signs Beijing wants to expand its options in the face of U.S. sanctions aimed at Iran.

Talks during Wen's six-day trip are sure to cover energy cooperation, at least in general terms, said Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University in east China.

China cut oil imports from Iran in January and February in a dispute over contract terms and has been looking for alternative supplies.

Iran is China's third-largest crude supplier.

"Strategically, it is very much in China's interest to have a strong Iran to block U.S. dominance of the Middle East and Southwest and Central Asia. It's not just about crude supply," said Willem van Kemenade, a Beijing-based scholar on Chinese foreign policy.

"Preventing Iran from getting into a crisis or regime collapse is very much in China's interest."

The United States is unlikely to wish to cut off Iranian crude flows altogether, which would push up oil prices as China and other customers are forced to seek replacement barrels.

The price of Brent crude oil has already surged about $10 per barrel since the middle of December, the commercial deadline for Tehran and Beijing to agree on January's shipments.

The European Union, meanwhile, has agreed in principle to a ban on Iranian oil, and the United States is trying to get allies Japan and South Korea to agree to cut purchases.

That could leave China with room to continue sourcing oil from Iran at a discount, allowing it to say it has cooperated with U.S. efforts to reduce revenue to Iran while also getting cheaper oil for itself.

"I think China's going to be receptive ... China doesn't want to be the outlier," said Frank Lavin, chief executive of Export Now and a former U.S. Undersecretary of Commerce for International Trade.

"They are going to go step-by-step, but they don't want to be the last person in the boat, so to speak," he said.

(Additional reporting by Tessa Dunlop in HONG KONG; Editing by Nick Edwards and Paul Tait)

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