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Indonesia and Iran on Wednesday signed a deal to develop an oil refinery in Java worth up to $5bn to be fed largely by Iranian crude and targeting China and other Asian markets.

The signing came during a meeting in Jakarta between Iran’s Mahmoud Ahmadi-Nejad and his Indonesian counterpart, Susilo Bambang Yudhoyono, and alongside a broader energy cooperation agreement between the two countries.

Mr Ahmadi-Nejad arrived in Jakarta on Tuesday night for three days of meetings with business, political, and religious leaders ahead of a weekend summit in Bali of the “D-8” group of developing countries with Muslim majority populations.

The visit highlights two confluent Iranian strategies. Under increasing international pressure over its nuclear programme, Tehran is seeking to reach out to the Muslim world. It is also trying to build stronger economic and trade ties with China and Asia in general, something Iranian officials believe that Indonesia and Malaysia - Asian countries with predominantly Muslim populations - could facilitate.

Tehran signed in 2004 a memorandum of understanding for a 25-year, $100bn gas and oil deal with China, and hopes shortly to agree a plan for a gas pipeline to India through Pakistan.

Indonesia has said it backs Iran’s right to develop nuclear energy and wants more time given to diplomatic solutions in the current stand-off, although Hassan Wirajuda, foreign minister, said on Tuesday that Jakarta wanted “Iran to be more transparent in its programme.”

The proposed 300,000-barrel-per-day refinery would be located in Java and start production in 2010 with the intent that 70 per cent of its output would go to China or other Asian markets, according to Rudy Radjab, CEO of El Nusa, a subsidiary of Indonesian state oil company Pertamina.

Under the deal, a minimum of 100,000 b/d of crude would be provided by Iran for the project for 20 years, according to Mr Radjab.

The $4bn-5bn in financing needed has yet to be lined up, however, and whether or not the project - the latest incarnation of a long-stalled plan to develop a refinery in East Java - will ever go ahead remains unclear.

But Mr Ahmadi-Nejad’s visit appears focused most on wooing the population of the world’s largest Muslim nation, something he should not have much difficulty doing given the deep suspicions many Indonesians have about US policy in the Middle East.

“People [in Indonesia] in general sympathise with him,” said Azyumardi Azra, the prominent rector of the Syarif Hidayatullah State Islamic University, where Mr Ahmadi-Nejad is due to meet students on Thursday.

Many Indonesians, Mr Azra said, consider it an “injustice” that Israel is allowed to have nuclear weapons while international efforts are under way to stop Iran from developing them.

Mr Ahmadi-Nejad will also be following a well-trodden route in Jakarta. The president’s schedule looks much like those of Condoleezza Rice or Tony Blair, both of whom visited earlier this year in bids to be seen engaging a moderate Muslim democracy.

His stop at the Islamic university, Mr Azra said, will also take place in the same auditorium where Karen Hughes, the current guardian of Washington’s image abroad, last October clashed with young Indonesians critical of US policy in Iraq.

Just before leaving Iran, Mr Ahmadi-Nejad refused to give details of his letter sent to US president George Bush on Monday. “Of course, Islamic courtesy dictates, in the first instance, that we should not publish the text,” he said. “Now, too, we are waiting to see the reaction and conduct of the letter’s addressee.”

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