India has signed an agreement with Iran to pay for crude oil it imports from the Persian Gulf nation in rupees, sources in know of the development said.

The memorandum of understanding (MoU) was signed following the US letting India and seven other nations to keep buying Iranian oil despite sanctions being reimposed on the Islamic state on November 5.

Sources said Indian refiners would make rupee payments in a UCO Bank account of the National Iranian Oil Co (NIOC). Half of these funds would be earmarked for settling payments for exports of Indian goods to Iran, they said.

Under US sanctions, India can export foodgrains, medicines and medical devices to Iran.

India had won the exemption after it agreed to cut imports and escrow payments. Under the 180-day exemption, India is allowed to import a maximum of 300,000 barrels a day of crude oil. This compares to an average daily import of about 560,000 barrels this year.

India, which is the second biggest purchaser of Iranian oil after China, has since then restricted its monthly purchase to 1.25 million tonne or 15 million tonne in a year (300,000 barrels per day), down from 22.6 million tonne (452,000 barrels per day) bought in 2017-18 financial year, sources said.

Two of its refiners — Indian Oil Corp (IOC) and Mangalore Refinery and Petrochemicals Ltd (MRPL) — bought 1.25 million tonne of oil from Iran in November and December.

India, the world’s third biggest oil consumer, meets more than 80 per cent of its oil needs through imports. Iran is its third largest supplier after Iraq and Saudi Arabia and meets about 10 per cent of total needs. Prior to this, India paid its third largest oil supplier in euros using European banking channels. These channels got blocked from November.

US President Donald Trump in May withdrew from the 2015 nuclear accord with Iran, re-imposing economic sanctions on the Persian Gulf nation.