Essar Oil, the top Indian buyer of Iranian oil, has this month cleared $500 million of a debt owed to Tehran, two sources with direct knowledge of the matter said.
Essar, which operates a 400,000 barrels per day oil refinery at Vadinar in Gujarat, owed about $3 billion to Iran for oil purchases made when tough Western sanctions had choked banking channels.
Some of the sanctions were lifted earlier this year after Iran met all the conditions to curb its disputed nuclear programme. That helped Iran in unlocking billion of dollars frozen overseas.
Indian refiners have been settling oil debts in euros via State Bank of India and Germany-based bank Europaeisch-Iranische Handelsbank AG (EIH).
No comment was available from Essar.