Despite its huge oil reserves, Iran is forced to import motor fuels due to a lack of production from its ageing refineries.

This winter it bought diesel from as far afield as Singapore after Reliance stopped supplies when its bankers refused to confirm letter of credit raised by Iran's central bank, the result of increasing Western pressure over Tehran's nuclear programme.

MRPL Managing Director R. Rajamani confirmed the company had finalised the sale, but did not give more details.

"Supply to Iran has been finalised. We gave some conditions; they agreed to it. This will now be formalised," he told Reuters.

An industry source on Friday said the deal to sell one 30,000-tonne cargo each month during May-December had been confirmed via a fax message to Neftiran Intertrade Company, fully owned by National Iranian Oil Co (NIOC).

He said MRPL will supply diesel at a premium of $4.40 a tonne to Middle East PERSIAN Gulf quotes.

The premium is slightly less than the one achieved by MRPL in spot sale of its previous diesel cargo, the source said, adding that MRPL'S spot diesel sales would fall sharply after the deal.

MRPL normally sells a 40,000 tonne high sulphur diesel cargo a month through tender.

Iranian officials were not immediately available for comment.

MRPL annually imports around 120,000 bpd crude from Iran for use at its 194,000 barrels per day (bpd) coastal refinery in the southern Indian state of Karnataka.

Although Western pressure has made it more difficult for some companies to finance trade with Iran, Tehran has been able to maintain a steady flow of imports from a host of suppliers by making alternative credit arrangements.

He said Iran will use a 30-day open credit line settled in euros, a shift from MRPL's policy to ask buyers to open a letter of credit for purchases.

A source told Reuters in April said the refiner would be able to sidestep the payment problems that Reliance faced by settling its deals through the government-run State Bank of India.