Bush and Silva struck an alliance to promote international ethanol use when Bush visited Brazil on March 9, but Silva on Friday reiterated Brazil's position that the alternative fuel won't gain traction worldwide unless the US drops a $0.53 per gallon tariff on Brazilian ethanol.

But a potential source of friction emerged on Friday after US officials expressed concerned about investments that Brazil's state-owned oil company reportedly plans to make in Iran.

'International interest'

The US embassy in Brazil said: "We think foreign investment in the petroleum and gas sectors in Iran is contrary to the international interest of pressuring the Iranian regime to accept its international obligations, suspend its [uranium] enrichment-related and reprocessing activities."

The embassy released the statement after Brazil's Valor Economico business newspaper reported that Clifford Sobel, the US ambassador, recently warned Sergio Gabrielli, chief executive of Petroleo Brasileiro SA, that its plans for Iran could cause complications for the company's petroleum drilling activities in the Gulf of Mexico.

The Iranian oil ministry's information network, Shana, reported in early March that Petrobras will sign a $470 million contract with Iran to develop Caspian Sea oil reserves.

Petrobras has not confirmed the contract and only says it is in talks with Iran.

Petrobras deals

Besides its reported plans to invest in the Caspian, Petrobras, together with Spanish energy firm Repsol-YPF, won a tender for exploration at the Tosan Block in the Arabian Gulf, Shana reported.

The companies plan to invest $35 million for exploration drilling at Tosan, Valor Economico said.

The US embassy in Brazil confirmed that Sobel discussed "the issue of potential investment in Iran" with Petrobras, and "more recently with the government of Brazil".

The statement did not mention Petrobras' Gulf of Mexico operations.

Ethanol alliance

The US-Brazil alliance's "goal is to ensure conditions for ethanol, and later biodiesel, to become globally marketed commodities", the Brazilian president said in a column published in the Washington Post newspaper on the eve of his US visit.

The US obtains ethanol mainly from corn while
Brazil gets its from sugarcane [Reuters]

Silva said: "This will only be achieved if trade in biofuels is not hindered by protectionist policies."

In Washington, Dan Fisk, the National Security Council's senior director of Western Hemisphere affairs, said the "top of the agenda" would be advancing the Doha round of World Trade Organisation talks, meant to boost global commerce.

The Doha round stalled last year because developing countries were upset by rich nations' refusal to significantly cut farm subsidies and by wealthy nations' demand for greater access to markets in the developing world.