China is buying crude oil from Iran using its currency the yuan, an Iranian diplomat has said.
 
"Yes, that is correct," Mohammed Reza Fayyaz the Iranian ambassador to the United Arab Emirates told Reuters when asked to comment on an earlier report in The Financial Times.
 
The newspaper cited unidentified industry executives in Beijing as saying most of the oil that goes from Iran to China is handled by the Unipec trading arm of Sinopec China's second-largest oil company, and through another trading company called Zhuhai Zhenrong.

Fayyaz also confirmed that Iran was spending the currency on goods and services imported from China.

The Financial Times  has reported that Iran is accepting renminbi for some of the crude oil it supplies to China, industry executives in Beijing and Kuwait and Dubai-based bankers said, partly as a consequence of U.S. sanctions.
 
Tehran is spending the currency, which is not freely convertible, on goods and services imported from China.
 
The trade is worth as much as $20bn-$30bn annually according to industry estimates, but a share of it is in barter form. Zhuhai Zhenrong, for example, pays Iran for its oil by providing services such as drilling, these people add.
 
"The global financial crisis accelerated the shift from the west to the east," said the chief executive of one bank in Dubai. "Such measures [as the U.S. sanctions against Iran] will now enhance the acceptability of the renminbi as a transaction currency."
 
The U.S. applied sanctions on Zhuhai Zhenrong earlier this year for allegedly brokering gasoline shipments to Iran – which lacks refining capacity – a charge that the company has denied.
 
Washington has also imposed sanctions that force financial institutions to choose between doing business with Iran or with the U.S. and it has spearheaded restrictions on Tehran's central bank. The sanctions and a diplomatic push have led to a reduction in Iranian oil imports by Japan, South Korea, India and China, which together buy more than 60 per cent of Iran's crude oil exports.
 
India, which already settles its oil purchases from Iran in rupees, was again urged on Monday by Hillary Clinton, U.S. secretary of state, to cut its imports further.
 
The renminbi purchases began some months ago. Initially the non-barter portion of the transactions were settled in Beijing through renminbi accounts but now, as a result of U.S. pressure, domestic banks such as Bank of China have stopped dealing with Iran, the oil executives and bankers said.
 
Instead, much of the money is transferred to Tehran through Russian banks, which take large commissions on the transactions, these people said.
 
Beijing has been trying to get its trading partners to use the renminbi, in effect transferring the exchange rate risk to its counterparties, since the price of crude is set in U.S. dollars. It also frees Beijing of the need to hold as many dollars in its reserves.
 
Iran sells 21 percent of its crude oil exports to China, making Beijing crucial to Tehran's ability to withstand unilateral U.S. sanctions.
 
Sinopec, Zhuhai Zhenrong and Iran's central bank declined to comment on the renminbi for oil trading.