New Delhi Looks to Buy More Iran Oil

India's finance minister said Monday that the country wants to boost imports of Iranian crude as it wrestles with economic woes—a step that comes weeks after the U.S. State Department exempted New Delhi from sanctions and one that could complicate U.S. efforts to pressure Tehran into ending its nuclear program.

The minister, P. Chidambaram, didn't disclose details of the Indian government's plan, one of a series of steps aimed at dealing with the country's persistent current-account deficit and its plunging currency.

As a result of U.S. and European sanctions targeting Iranian oil exports, Iranian crude shipments to India were down 26.5% in the year ended March 31 from a year earlier, a result welcomed by Washington.

In June, the State Department exempted several countries, including China and India, from financial sanctions targeting Iranian oil sales because those countries continued to reduce their purchases.

But on Monday, Mr. Chidambaram indicated a change in course. "Within the U.N. sanctions and fully complying with the sanctions, there may be more space for imports from Iran," he said.

Under the plan, Iranian oil would be purchased with Indian rupees, which Iran would then use to buy Indian goods—potentially including food, drugs, consumer products and auto parts—for shipment to Iran.

The effect of that would be to offset some of the drain that oil imports impose on India's international balance of payments and help shore up the Indian rupee, which hit a record low against the dollar last week.

The Obama administration and Congress are threatening to increase sanctions on Iran if nuclear diplomacy doesn't show results, potentially putting Washington and New Delhi in conflict. The U.S. House passed legislation this month calling for a total ban on international buying of Iranian crude, and the Senate is expecting to follow suit.

The U.S. law, which is expected to be passed this year, would empower the White House to sanction foreign companies still purchasing Iranian oil. The sanctions could block any sanctioned Indian firms from conducting U.S. dollar transactions or using the American financial system.

It is unclear how much Indian buying of Iranian oil, essentially through a barter arrangement, would ease the pressure on Tehran from the U.S. and its European allies.

"It will call for some very fine balancing on all fronts. It is true that Washington has been discouraging all players from importing crude from Iran," said Uday Bhaskar, a visiting fellow at the National Maritime Foundation and former head of the Institute of Defence Studies and Analyses in New Delhi. He said he thinks New Delhi will move cautiously so as not to upset Washington.

Ajay Sahai, director-general of the Federation of Indian Export Organizations, said greater Indian imports of Iranian crude would mean "a greater market for Indian products to Iran."

India's exports to Iran as part of past oil purchases have mainly been agricultural products such as basmati rice and soybean meal, along with medicines. But now, Mr. Sahai said, India is prepared to export a wider range of goods and services.