Iran is struggling to arrest a decline in its oil exports and they could fall to new lows in the coming months due to Western sanctions, putting further strain on the country's financial resources, said a report.

The drop in Iranian supply is supporting oil prices and hurting Tehran's revenues, deepening hardship for a population deprived of basic imports and adding to pressure on the government over its nuclear programme.

In a report on Friday, the International Energy Agency (IEA) estimated Iranian exports falling to a new low of 860,0000 bpd in September, a huge plunge from 2.2 million bpd at the end of 2011.

The comment came as a surprise as the IEA has itself predicted Iranian exports may start picking up after a steep July plunge. Some industry executives agreed with the IEA on Friday that it was too early to predict an arrest in decline.

"We had expected compliance to erode slightly at the margin - some of the participants were trying to evade constraints on shipping - but we haven't seen any evidence of that yet," said Antoine Halff, head of the IEA's oil Industry and markets division.

The slump in exports has led to a steep fall in revenues and clashes on the streets of Tehran as the local currency collapsed.

The European Union banned Iranian crude from July 1 and other countries have cut purchases in response to tighter U.S. sanctions. The EU ban prevents EU insurance firms from covering Iran's exports, hindering imports by some non-EU buyers.

On Friday, the European Union provisionally approved new sanctions against Iran over its nuclear programme, with senior diplomats giving their backing to measures against Tehran's banking sector and industry.

Some industry sources had expected to see Iranian exports bottoming out in August and September as customers found ways to get around difficulties in obtaining insurance, such as by using Iranian tankers. The IEA, an adviser to 28 industrialised countries, did not confirm this.

"We might see a little bit of an uptick next month in exports but we do not think it will be very significant," said Halff, speaking on a conference call. "Our assumption is exports will remain quite low for the next few years."

Iran is currently relying on oil exports to China, India, South Korea, Japan and Turkey. But deliveries even to the most loyal customers have become very volatile.

Turkish imports of Iranian oil plummeted to around 100,000 barrels per day in September after spiking to over 200,000 bpd in August, data showed on Friday.

Industry sources said on Friday Iranian shipments may fall further in coming months as its tanker fleet has been struggling to meet delivery schedules and customers have found securing adequate insurance cover a challenge.

"The Asian buyers have shipping issues around deliveries," said a source with a company that used to buy Iranian oil. "If they don't find solutions around shipping, we may see a further decline in exports."

Producers have stepped in to fill the gap left by Iranian crude in Europe, said an executive with French oil company Total , previously a major buyer of Iranian oil.

"Iranian volumes in Europe have been replaced mainly by Saudi barrels and Iraqi barrels," said Thomas Waymel, senior VP of crude supply and trading at Total's trading arm Totsa, at a conference in Geneva this week. He estimated Iranian exports fell to around 1 million bpd in the third quarter.

Iran is slipping down the ranks of the world's oil producers, having been overtaken by Iraq as the second-largest producer in the Organization of the Petroleum Exporting Countries behind Saudi Arabia earlier this year.

Iranian production fell by 220,000 barrels per day (bpd) to 2.63 million bpd in September, the IEA said.

September's output is Iran's lowest since 1988, when the country pumped 2.24 million bpd, according to figures from the U.S. Energy Information Administration.

Israel and the United States have said they reserve the right to use force if necessary to prevent Iran from obtaining a nuclear weapon. Iran says its nuclear programme is peaceful.-Reuters