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By Sara Rajabova

India's Petroleum and Natural Gas Minister Veerappa Moily has said his country will not halt imports of Iranian crude oil, rejecting recent Western news reports suggesting to the contrary.

While noting that unilateral anti-Iran sanctions by the US and the European Union have caused some difficulties for India in terms of insuring Iranian oil shipments, Moily told reporters in New Delhi that his country intends to establish a special fund for insuring oil imports originating from Iran, IRNA news agency reported on Tuesday.

The remarks by the Indian official came in response to the Western media reports on New Delhi's decision to halt its Iranian oil purchases, which he strongly denied.

Indian officials have insisted on continued oil imports from Iran while reiterating that they will not submit to the Western pressures on the issue, the report further says.

Earlier Reuters reported that Indian Mangalore Refinery and Petrochemicals Ltd (MRPL) and Essar Oil (ESRO.NS) said they would halt imports from Iran because of insurance problems.

MRPL was also said to lift 40 percent less oil under its annual deal with Iran in the fiscal year ending March 31, while Essar Oil aims for a 15 percent reduction. The two companies have a deal to buy 100,000 barrels per day of oil from Iran in 2012/13.

Delhi is currently Iran's second largest oil consumer and purchases around $11.5 billion worth of Iranian oil each year at current prices, according to Bloomberg News.

However, the trade between two countries has become increasingly strained as the United States and European Union have enacted third party sanctions against countries that continue doing business with Iran's energy and financial sectors.

Since India can't deposit dollars or euros in any foreign bank for importing crude from Iran because of the sanctions, payment has been restricted to rupee deposits in Indian banks which Iran can use to buy goods from India. The value of Iran's imports from India is much smaller than that of its crude exports to the South Asian country.

India's Foreign Minister Salman Khurshid said that India's central bank opposed a solution that would involve settling payment in other currencies such as rubles or yen.

He said "enormous" funds were lying in Iran's account with India's UCO Bank and that the resulting trade imbalance with Iran was "a matter of concern".

Although the U.S. has provided India with a waiver from its sanctions because Delhi has reduced the amount of oil Iran purchases, the EU has threatened to stop insuring India's refineries if they continue processing Iranian oil.

Also, Khurshid said that he had asked the EU to clarify the situation as he tries to resolve the reinsurance problem and other issues.

"This is something we have to attend to immediately and hopefully in the near future we will find some solution," Khurshid told reporters.

Trade with Iran "is becoming tighter and tougher", he said.

Local insurers have been reluctant to take the risk of providing insurance to refineries processing Iranian crude as they are mainly dependent on reinsurance in overseas markets to hedge their insurance risk. Global reinsurers are staying away due to the Western sanctions on Iran-related transactions.

According to Bloomberg, India has struggled to get tankers and insurance for transporting supplies from Iran after the U.S. and the EU-imposed sanctions on Iran.

Iran has offered to provide insurance cover to Indian plants if they continue purchasing Iranian crude. While the processors have been shipping crude on tankers operated and insured by Iran, they won't agree to have their plants covered because they aren't confident the country will be able to pay them if they make a claim.

Meanwhile, India's Oil Secretary Vivek Rae reiterated that details of an insurance fund for Iranian oil shipments will be outlined in the near future, noting that the country's national insurance companies, Oil India Development Board as well as major players in the nation's oil industry will contribute funds to the insurance fund.

However, India's oil imports from Iran fell 24 percent in the first 11 months of the contract year.

India, the world's fourth biggest oil importer and the second largest buyer of Iranian crude behind China, shipped in about 271,200 bpd oil from Iran in the period from April to February, trade data showed, below the government's target of 310,000 bpd for this fiscal year, Reuters reported.

OPEC's biggest oil producers are in talks to supply extra crude to India if India prepares to halt purchases from Iran because of global sanctions.

For the April-December period, Saudi Arabia retained its position as India's main crude supplier, selling 24.8 million tons, followed by Iraq at 17.2 million tons, Venezuela at 15.1 million tons, Kuwait at 13.2 million tons, the United Arab Emirates at 11.4 million tons and Nigeria at 9.9 million tons.

Iran's major Asian clients - China, India, Japan and South Korea - have all cut imports heavily to secure waivers and continued access to the U.S. financial system.

China's investment and bilateral trade with Iran declined sharply in 2012, mostly as a result of Western sanctions going into effect. In the first two months of this year, however, Beijing increased its oil imports from Iran by 2.7 percent, The Diplomat reported.

Japan and South Korea will also reportedly reduce the amount of oil they purchase from Iran by between 5-15 percent at the start of the new financial year next month. Already Japan reduced its oil imports from Iran by nearly 40 percent in the six months between August 2012 and January 2013. South Korea reduced its oil purchases from Iran by 30 and 25 percent in January and February of this year respectively.

In January Iran's oil minister told parliament that oil sales had declined by 40 percent in 2012. The FY 2013 Iranian budget (yet to be passed), for the year that began March 21, forecasts a 40 percent decline in oil revenue year-on-year. This figure was based on Iran selling between 0.9 million b/d and 1.3 million b/d in 2013, a quarter of the approximately 4 million b/d Iran sold in 2010 and roughly half the 2.2 million b/d it sold in 2011.

Europe and the United States introduced tough sanctions last year targeting Iran's oil exports to force Iran to the negotiating table over its nuclear program. However, Iran says its nuclear program is solely for the peaceful purposes.