Top exporter Saudi Arabia approved sales of 3 million barrels of extra crude to India for August to make up for a loss of shipments from Iran due to a payment dispute, sources with direct knowledge of the sale said on Tuesday.

Iran cut sales for August to pressure Indian refiners into settling $5 billion in debts for oil supplied, after New Delhi failed to find a way around US and UN sanctions that make financing deals with Tehran difficult.

At stake is 400,000 barrels per day of oil, equal to 12 percent of India's total demand of 3.46 million bpd.

The Saudi sales would cover around a quarter of Iran's daily exports to India. With oil trading at around $100 a barrel, the additional volumes are worth $300 million.

'Saudi Aramco has confirmed the supply of additional volumes to Indian refiners,' one of the sources said. 'One million barrels each to Bharat Petroleum, Essar and Hindustan Petroleum. It is a mix of Arab light, Arab Heavy and Arab Medium.'

Sources at Indian refiners Hindustan Petroleum Corp (HPCL), Bharat Petroleum Corp (BPCL) and Essar Oil said that state oil giant Aramco had confirmed it would supply each of them with an additional 1 million barrels of crude in August.  

Indian buyers reached out to Aramco last week to request additional oil to plug the gap from Iran, giving Riyadh an opportunity to grab a bigger share of the market in Asia's third-largest oil consumer.

Refiners have also sought additional barrels for August from Iraq, Kuwait and the United Arab Emirates.

India has a back-up plan to cope with a halt to crude supplies from Iran, S Jaipal Reddy, its oil minister said on July 21. He did not elaborate on the plan.

India and Iran have struggled since December to find ways for New Delhi to pay for imports, after India's central bank stopped payments through the Asian Clearing Union (ACU) mechanism. There is no ban against buying Iranian crude, but sanctions have made financing trade with Iran tough.

The US and its allies aim to isolate Iran to halt its nuclear programme, which they say is to develop weapons. Iran says it needs nuclear power supplies. - Reuters