New Delhi: India will make a part payment of $700 million to Iran, towards settling oil payment dues pending because of sanctions imposed on the Gulf nation, within the second half of this month.

A finance ministry source here told on Monday that Indian oil refiners will deposit $700 million with the Reserve Bank of India, which will transmit the money to Iran.

“The RBI will make payments of $6.5 billion in past oil dues to Iran in a calibrated manner so that there is no pressure on exchange rate,” the source said.

“The first tranche will go out sometime this month,” he said.

Last month, the US Treasury approved the payment of $1.4 billion out of India’s $6.5 billion outstanding oil payments to Iran.

The remaining just over $4 billion would be cleared in instalments after payment channels are cleared, the source added.

Iran has asked India to pay, within the next two months, the dues on account of oil supplies that have accumulated since 2013 with sanctions on the country blocking payment routes.

Iranian Foreign Minister Javad Zarif said here last month that Iran’s central bank and government officials are working with their Indian counterparts on the technicalities of the settlement of India’s oil import dues.

This follows the world powers signing the historic nuclear deal with Iran last month that has opened the door to the easing of sanctions.

The source said that the cumulative dues worth $6.5 billion (Rs.41,000 crore) could be discharged partly in rupees, and the balance in dollars or euros.

“The modalities of payment and the route are being worked out,” he said.

According to him, Iran will open a fresh account with one of the Indian banks for receipt of the rupee payment, which it will use to pay for its imports from India.

Since February 2013, Indian state-run and private refiners have paid around 45 percent of the payment due in rupees, through the Kolkata branch of the state-run UCO Bank.

The balance has been accumulating, pending finalisation of a payment route and mechanism.

Iran was until 2006 India’s second-largest supplier of crude oil, but dropped to number seven by the end of 2013-14.