NEW DELHI/TEHRAN India and Iran failed to find a quick way on Friday to enable New Dehli to continue imports of Iranian oil worth $12 billion while boosting the transparency of deals as sought by the United States.
India's central bank said last week payments to Iran could no longer be done through a long-standing clearinghouse system run by regional central banks.
Washington praised the move, saying it would reduce what it sees is a misuse of funds by Iran to support its nuclear activity, which the West suspects has military aims.
But Tehran, which says its nuclear programme is fully peaceful and denounces U.S. and United Nations' sanctions against it, refused to sell oil under India's new rules.
Iran sent a central bank delegation to Mumbai for talks on Friday and Iran's semi-official Fars news agency quoted Iran's deputy oil minister, Ahmad Khaledi, as saying the two sides found a solution by changing the currency of payment.
But Indian sources said more talks were needed.
"Today we had technical level talks. There will be further rounds of discussion until a solution is reached between the policy makers of the two countries," a senior official present at the meeting said.
He added that the idea of using euros instead of dollars was discussed but the two sides would need to make sure the European Central Bank would be happy with the trade transparency and the final recipients of funds if money was to be transferred through European banks.
India will need to strike a delicate balance between its energy needs and global diplomatic interests to solve the dispute.
Less than two months ago, U.S. President Barack Obama pledged to help boost New Delhi's global role on a visit to India.
Although U.N. sanctions on Iran do not cover oil sales, U.S. sanctions against Tehran have made it very difficult to trade Iranian crude in recent years.
India has been buying about 400,000 barrels per day of Iranian crude, settling payments through the Asian Clearing Union, a system created in the 1970s by central banks in South Asia and Iran to clear trade payments between them.
Critics say the scheme is opaque to the monitoring of flows into Iranian organisations against which Washington has sanctions, as settlements are made on a net basis every two months.
Iran supplies 13 percent of Indian oil imports, and a halt would leave Indian refiners scrambling for alternative sources at a time when the economy is growing by around 9 percent a year.
Iran is India's second largest supplier after Saudi Arabia and seeking alternatives for Iranian imports when global crude prices are at near two-year records would spur oil prices further, costly for both India and the United States.
India and Iran have long-standing ties, but analysts say irritants and a new strategic thinking are prompting New Delhi to adopt a more nuanced and assertive policy, mindful of ties with Washington and Arab states' concerns about Iran's nuclear ambitions.
"In a very subtle way, India is sending a message that its closeness with Iran will not affect relations with other Middle Eastern countries," said P.R. Kumaraswamy, head of West Asian studies at New Delhi's Jawaharlal Nehru University.
(Additional reporting by Prashant Mehra, Abhiji Neogi and Swati Pandey in Mumbai; Writing by C.J. Kuncheria; editing by Dmitry Zhdannikov and Philippa Fletcher)