TEHRAN, July 18: Iran warned India it would stop supplying oil from August 1 if a payments dispute is not resolved, the semi-official Fars news agency reported, a move likely to harm the two countries' annual $12 billion trade.

“Iran might stop giving permission to export its oil to India from August 1 if the dispute over receiving payments from India is not resolved,” an unnamed oil official told Fars on Monday.

Iran, facing increased isolation internationally, and energy-hungry India have been trying to resolve an impasse triggered in December, when the Reserve Bank of India ended a regional clearing mechanism under US pressure.

Iran says India owes it $5 billion for oil imports in recent months.

“NIOC (National Iranian Oil Co) has not yet issued a permission for oil exports to India for the month of August ...Iran's contracts with Indian refineries is for a year, and without permission these contracts will be halted,” the official was reported as saying.

NIOC, the state oil firm that supplies around 12 per cent of India's oil imports, set the deadline in a letter dated June 27 to Indian refiners, sources told Reuters in early July.

The official told Fars that the letter was not sent officially by NIOC.

“The (previous) warning was not sent by NIOC officially, and it was not a warning over stopping exports to India completely,” the official told Fars.

“Indian refineries should start looking for other countries and sources for their crude needs if a payment solution is not found.”

Analysts say Iran is putting pressure on India to accelerate the resolution of the payments mechanism dispute.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.—Reuters