India is exploring payments via Turkey for oil imports from Iran, an Indian oil ministry source said on Wednesday, as the two countries search for a way to settle their trade after a long standing clearing system was scrapped by New Delhi.

Iran is India's second biggest oil supplier after Saudi Arabia and imports total about $12 billion a year.

Iranian supplies to India have not yet been hit, despite India's central bank stopping a clearing house system for crude imports from the Islamic nation in December, under pressure from the United States.

"We are still exploring options. It has to be done very quickly," the Indian oil ministry source said, adding that the option of settling Iranian oil trade through Turkey was being considered.

India stopped making payments earlier this month via a Hamburg-based bank handling international trade for Iranian companies.
The use of the German bank had drawn strong disapproval from the United States, which suspects Iran is using its oil money to fund a nuclear weapons program. Iran says its nuclear program is intended for peaceful purposes.

Washington had praised the Indian central bank's move last year, which came little more than a month after U.S. President Barack Obama visited India.

Earlier this month, a senior Indian official said India and Iran were talking to non-European countries and territories to settle payments for their oil trade.

India's imports of about 400,000 barrels per day (bpd) of oil from Iran have continued, despite the lack of payments, on undertakings from state-run oil companies which are long-standing customers.

India, Asia's third-largest oil consumer, imports over two-thirds of its oil needs and depends heavily on volumes from the Middle East to power its economy, which is growing around 9% per year.