China has made an audacious move to force Iran to sell it cheaper crude, disrupting the flow of over 10 percent of the Islamic Republic's exports by cutting January imports in half.    

In contrast to other top Asian buyers worried about what sanctions mean for crude flows from the world's fifth-largest exporter, China has shown no public qualms about the risk that a disruption will drive up the cost of oil.     

The world's second-largest crude importer has chosen its moment for hard bargaining. Iran is facing the threat of fresh sanctions from the US and European Union over its nuclear programme that could prevent Asian refiners from paying for Iran's oil, and European refiners from buying it.     

With fewer buyers Iran will face a stark choice: either sell more to top buyer China, or cut the exports that provide Tehran's economic lifeline.     

China knows it is Iran's buyer of last resort. So when Iranian negotiators refused to budge on their demand for tougher terms on 2012 oil sales, refiner Sinopec responded by cutting its January purchases by about 285,000 barrels per day.

That is over half of the near 550,000 bpd that China has been buying on annual contract this year and over 10 percent of Iran's 2.4 million bpd of exports.      

'Now is a good time for the Chinese to bargain,' said Liu Tong Zhang, Singapore-based analyst at consultancy Facts Global Energy. 'It's all about price. We should see this resolved in a matter of months.'           

A long-term disruption in the volume of supplies China buys would strengthen the impact on Iran of new US and EU sanctions.     

But China has previously criticised unilateral sanctions imposed outside of the UN framework, and is simply looking for a better deal rather than changing diplomatic tack, analysts and industry sources say.     

Other industry sources said the dispute was likely to be short lived, as Iran would back down if it fears it will lose market share in China.      

Tehran depends on crude for about half of government revenues and can ill afford such a big hit. The value of the crude Sinopec has cut in January is worth nearly $900 million at a price of around $100 a barrel.     

China has driven global oil demand growth for a decade and Iran is competing with regional rival Saudi Arabia for the market. China bought 547,000 bpd from Iran through October this year, up from 426,000 bpd for the full year 2010. Only Saudi Arabia and Angola sell more to China.      

Saudi supplied 978,000 bpd through October, up from 893,000 bpd last year.               

Tokyo, Seoul and New Delhi are working diplomatic channels to prevent the planned US sanctions against Tehran from impacting oil shipments, as they worry about driving up global fuel costs and straining fragile economies.     

'I conveyed my view that there is a danger of causing damage to the entire global economy if the imports of Iranian crude oil stop,' Japan's Foreign Minister Koichiro Gemba said on Monday after talks with Secretary of State, Hillary Clinton.       

In contrast China, the world's second-largest importer after the US, has shown no public qualms about potentially driving up the costs for the crude on which it depends.     

Rising supply from Opec may have mitigated Beijing's concern. Top oil exporter Saudi Arabia boosted output to its highest in decades in November.     

Libya is also increasing output rapidly as it recovers from shutdown during the country's civil war. Sinopec's oil trading arm Unipec has bought about two million barrels of Libyan crude for December or January lifting, traders said.     

Iraq has been steadily ramping up output to 2.95 million bpd, and Chinese traders see the country's liftings from Iraq up by around half in 2012 to 500,000 bpd.      

Unipec has already bought much of the oil it will need to substitute the Iranian barrels in January, traders said.     

'Unipec has bought a lot of Russian Urals and Iraqi Basra Light cargoes for January loading or January arrival, enough to offset its loss of Iranian oil', said one trader at a western trading house.     

Aside from supplying China's refineries, Unipec also trades on its own account. Its global portfolio of around a million bpd gives it scope to replace Iranian barrels in deliveries to Chinese refineries, although it would then need to use alternatives to meet contracts with international customers. – Reuters