India readies refiners for $700 million oil payment to Iran: sources

SINGAPORE (Reuters) - Indian refiners have been told to prepare to deposit $700 million with United Commercial Bank in readiness for it to pass on the first instalment of oil payments owed to Iran, two sources with knowledge of the matter said, ahead of the expected lifting of sanctions against Tehran.

After the landmark nuclear deal between Iran and six major world powers struck on July 14, sanctions could begin to be removed later this year if U.N. inspectors confirm Tehran is complying with its provisions.

The refiners -- Essar Oil , Mangalore Refinery and Petrochemicals , Indian Oil Corp , Hindustan Petroleum Corp and HPCL Mittal Energy -- together owe a total of more than $6.6 billion. The $700 million part-payment will be split in line of the proportion owed by each.

Last month Reuters reported that Indian refiners were asked to be prepared to pay $1.4 billion dollars to Iran in two equal installments. India is Iran's biggest oil client behind China, though New Delhi has reduced purchases under pressure from sanctions.

Indian refiners together owe Iran more than half of the bill for crude bought since February 2013, when a route to pay for Iranian oil through Turkey's Halkbank was stopped. Under an interim nuclear deal in November 2013, some of Iran's blocked funds were released by Asian buyers, including India. Indian companies have deposited 45 percent of their oil payments in a rupee-denominated account at United Commercial Bank, which Iran is allowed to use to buy goods not covered by sanctions, such as food and medicine.

(Reporting by Nidhi Verma; Editing by David Goodman)