Chinese refiner Sinopec has turned down offers of bargain Iranian crude and will cut imports by up to a fifth this year, a senior Chinese oil executive said, insisting ties with the United States were more important than cut-price oil as the West squeezes Tehran over its nuclear programme.

On Monday the U.S. government, which aims to choke off Tehran's oil revenue and force a halt to nuclear development it believes is aimed at making weapons, added India and South Korea, but not China, to a list of countries exempt from sanctions that begin on June 28 - cutting companies off from the U.S. financial system - noting their significant cuts in oil imports from Iran. Iran says its nuclear programme is for civilian purposes.

With just 20 days to go until European Union sanctions against Iran's oil trade - effectively cutting off tanker insurance - major Asian buyers of Iranian crude were still scrambling on Tuesday for a solution to keep the oil flowing.

EU companies will be banned from insuring tankers carrying Iranian crude from July 1 and, as European insurers cover most of the world's tankers, Asian importers in China, India, Japan and South Korea have struggled to find alternative insurance.

The Chinese official said the insurance ban would not be a problem for China, which alone buys as much as a fifth of Iran's crude exports. "So long as China wants to solve this problem, there must be a way. It won't be a difficult issue. We are fully capable of sorting it out," he said, without going into how importers would continue bringing in Iranian oil.

India's state-owned refiners will halt planned imports of 173,000 barrels per day (bpd) from Iran when the EU sanctions take effect unless the government allows them to use insurance and freight arranged by Tehran, sources said, and Japan's government made the first move towards sovereign insurance, submitting a special bill to parliament to allow it to insure Iranian crude imports.

Government sources in South Korea have said Seoul will simply stop buying Iranian crude from July, and a foreign ministry spokesman told a briefing on Tuesday that they had given no consideration to providing state guarantees on oil imports.

On Tuesday Turkey, which a source at the country's only refiner has said steeply cut Iranian oil imports in May and June, said it had started talks with Saudi Arabia on long-term crude purchases.

Turkey, the world's fifth-largest buyer of Iranian oil in 2011, taking 7% of Iran's crude exports, pledged in March to cut such imports by 20% and was among the seven countries added to Washington's list of those granted a waiver from sanctions on Monday.

The four big Asian buyers have cut Iranian imports by about a fifth from the 1.45 million barrels per day they bought a year ago. The cuts and threat of sanctions have helped drain Iran's oil revenues by an estimated $10 billion so far this year.

China opposes any unilateral sanctions on another country and says it has to buy Iranian crude to meet its energy needs. "We believe the crude oil trade between Iran and China is completely legal and fair. We have already made clear our position to the U.S. side on this," foreign ministry spokesman Liu Weimin said at a regular briefing on Tuesday.

Discounts rebuffed

While China made big cuts in first-quarter imports from Iran, the United States is wary that Beijing might find it difficult to resist a bargain if Tehran tries to sell crude it can no longer export to other buyers later this year. Sinopec has already resisted such offers, said the Beijing-based official who has knowledge of the refiner's trading operations.

"The Iranians have made some offers, but we have turned them down," the official said, declining to elaborate. "The economic benefits of filling some discounted Iranian oil into the national oil reserves would be too small a consideration for the state. The key concern for the Chinese government would be China-U.S. relations."

China is the only one of Iran's four major Asian oil buyers - the others are India, Japan and South Korea - that could still face penalties from the United States once sanctions kick in.

Singapore, not a big oil consumer but a major blender of fuel, including some from Iran, said it imported no Iranian crude in May and was in talks with the United States about getting an exemption from sanctions. The government, which normally has a hands-off approach to the oil trade, has stepped in to make sure its banks and finance houses are not locked out of the U.S. system, sources said.

Strategic storage

China is Iran's top trade partner, and Beijing has publicly criticised sanctions against Tehran outside the framework of the United Nations. Still, China's state-owned energy giants have made big investments in the United States, perhaps making them more mindful of sanctions.

China is the world's second-largest oil consumer and is building up strategic storage across the country to deal with any surprise supply outages. Expectation in the oil market has been that sooner or later, Beijing would become Iran's buyer of last resort and take the crude into its tanks.

But Sinopec has set its 2012 import target for Iranian crude at 400,000-420,000 barrels per day (bpd), 16-20% below last year's 500,000 bpd, said the official, asking not to be named.

"One thing is for sure: within this year, there will be no increase (over the target) in Iranian oil," he said. "The nearly 20% cut shows China places the relationship with the United States at the very top level. The U.S. should really appreciate what China has done and not push for more in a condescending manner."

Sinopec more than halved its Iranian crude imports in the first quarter as it tussled with Tehran over the terms of its annual oil purchasing contract, industry sources have told Reuters. The 16-20% cut detailed by the official for the full year was a little more than the 14% annualised cut Reuters estimated after those contract disputes ended and Sinopec imports started to recover in April.

"If you compare actual loadings from April onward, you're going to see almost the same amount of oil being lifted from Iran versus a year ago," the official said.

China bought a total of 27.76 million tons, or 555,000 bpd of Iranian oil last year, according to Chinese customs data . The 500,000 bpd bought by Sinopec is covered by two separate contracts with the National Iranian Oil Co (NIOC) - one through Unipec, Sinopec's trading arm, and a second via Zhuhai Zhenrong Corp, a state oil trader now on Washington's sanction list.