National Iranian Oil Co (NIOC) has said it will halt supplies to Indian refineries in August if the two countries have still not found a way to make payments for their $12 billion a year oil trade, three industry sources said on Friday.
NIOC, which exports about 400,000 barrels per day (bpd) to India -- 12% of its needs -- set the deadline on the long-running discussions in a letter dated June 27 to Indian refiners, the sources, who requested anonymity, told Reuters.
"We regret to inform you that NIOC would hardly be in a position to deliver the Iranian crude oil to our partners in India ... in August 2011 unless concrete solutions are worked out for remittances of NIOC's dues," the letter said, according to two sources who have seen the letter.
The additional pressure from Iran, India's second-biggest crude supplier, comes two weeks after its biggest oil provider, Saudi Arabia, agreed to sell Indian clients as much as 2.6 million barrels of extra crude in July.
Iran, facing increased isolation internationally, and fast-growing energy-hungry India, have been looking to resolve an impasse triggered in December when the Reserve Bank of India ended a regional clearing mechanism under US pressure.
"It's just their way of trying to put the ball back in the court of the Indian government so that they make a decision, because they don't want to be left hanging," said Praveen Kumar, head of South Asia oil and gas consulting at FACTS Global Energy.
"This is not something that the Iranians would like to do."
Earlier this year, Germany allowed India to pay for the oil via Hamburg-based EIH bank, which handles international trade for Iranian companies.
But India halted that conduit in early April after discussions with German chancellor Angela Merkel, and EIH has since come under EU sanctions.