China's Sinopec has signed a tentative deal to provide financing of $6.5 billion for oil refinery projects in Iran, two Iranian news agencies reported on Wednesday.

If such an agreement goes ahead, it would provide Iran, the world's fifth-largest crude exporter, with much needed capital to help develop its all-important energy sector, which is under U.S. sanctions.

But growing energy ties between Tehran and Beijing may irritate Washington and its Western allies which are putting pressure on Iran to halt sensitive nuclear work they suspect is aimed at making bombs. Iran says its nuclear work is solely aimed at generating electricity.

There was no immediate comment from Chinese top refiner Sinopec on the reported signing of a memorandum of understanding (MOU) with Iran.

We have signed an MOU with China's Sinopec amounting to $6.5 billion for financing refinery projects, said Managing Director Noureddin Shahnazizadeh of National Iranian Oil Refining and Distribution Company (NIORDC), ISNA news agency reported.

Mehr News Agency, which earlier carried an unsourced report on the MOU, said the final agreement between Sinopec and NIORDC on funding for constructing and developing oil refineries in Iran was expected to be signed within two months.


The news agency reports did not give details on how Sinopec would provide financing under the tentative agreement.

Mehr said technical experts from the two companies were studying how to implement the MOU.

Sinopec had earlier agreed to import 150,000-160,000 barrels per day (bpd) of Iranian crude this year, unchanged from 2008.

Mehr listed seven new oil refinery projects in Iran and said they needed a total of $23 billion in investments to build or complete them.

By completing or building these seven new oil refineries, the country's total oil refining capacity will reach 3.2 million barrels per day from the current 1.67 million, Mehr said.

Western firms have become increasingly wary of investing in Iran, which is under U.N. and other sanctions because of the dispute over its nuclear energy program. Tehran denies U.S. claims that the program is aimed at developing nuclear bombs.

But Iran is still drawing interest from Indian, Chinese and other Asian firms seen as less susceptible to international pressures.

China, which is among six world powers seeking to resolve the long-running nuclear row diplomatically, is the second-largest buyer of Iranian oil.

In 2007 Sinopec finalized a $2 billion pact to develop the huge Yadavaran field in Iran, whose economy has been hit by the fall in oil prices over the past year.

(Writing by Fredrik Dahl; editing by James Jukwey)