China, Iran eye barter plan to bypass U.S. sanctions - FT

Fuel overflows as an Iranian man pumps gasoline into his car at a gas station in Tehran January 21, 2007.

LONDON (Reuters) - Iran and China are discussing using a barter system to exchange Iranian oil for Chinese goods and services, as U.S. sanctions have blocked China from paying at least $20 billion for oil, the Financial Times said.

The paper, citing people familiar with the problem, said U.S. financial sanctions against Iran, which make it hard to conduct dollar-denominated business, meant China might owe the oil-rich country as much as $30 billion.

The people said the unpaid oil bills had built up in the past two years and the governments, which are in early-stage talks, were looking at how to "offset" the debt, the FT reported.

The paper said some Iranian officials were growing increasingly angry about the inability of the country's biggest oil customers such as China and India to pay cash, which has contributed to a shortage of hard currency for the country.

"Both China and India are happy to keep Iran's money in their banks and try to get Iran involved in barter deals to

sell their junk, or given yuan and rupees instead of hard currencies," the FT quoted one Iranian former official who chose to remain anonymous as saying.

It said the official added that Iran had not yet accepted the alternatives.

(Reporting by Brenda Goh; Editing by Dale Hudson)