India's Mercator Lines has stopped offering a ship for transporting Iranian oil to India due to US political pressure, industry and shipping sources said, adding to obstacles Iran faces in exporting its crude.

The Omvati Prem was the only ship backed by local emergency insurance and available for charter by Indian refiners when US and European sanctions hit other cover for ships carrying Iranian crude.

Iran took advantage of this to engage the ship for the delivery of two cargoes to its top Indian client, refiner MRPL , which does not have the facilities to take Tehran's larger vessels.

National Iranian Oil Corp (NIOC), which does not have smaller ships like the Omvati Prem, will now have to use its suezmax ships only partially loaded to be able to deliver to MRPL's plant.

"At the moment we are not having any plans to lift cargoes from Iran," Kowshik Kuchroo, president of shipping at Mercator Lines, said in an interview.

EU and US trade sanctions on Iran have targeted insurance on ships carrying its crude, as part of an effort to limit Tehran's oil revenue to curb its nuclear programme. Iran's crude exports last year were roughly halved as a result.

The four biggest buyers of Iran's crude - India, China, Japan and South Korea - cut shipments by so much that they were given waivers from sanctions, which would have shut them out of the US financial system. To renew those waivers, however, they need to make further cuts.

India's imports from Iran fell 22 per cent in the first 10 months of its annual contract to around 286,400 barrels per day (bpd). That meant Iran slipped to fifth among its suppliers from ranking second a year ago.

Energy-hungry India, the world's fourth-biggest oil importer, is expanding its refining capacity to meet rising local demand. It ships in about 80 per cent of its crude needs from overseas.

Indian insurance cover was meant to help local shippers and refiners continued to obtain oil supplies from Iran.

In January Reuters reported that Iran had chartered Omvati Prem with cover provided by Indian insurance companies for supplying oil to MRPL in December.

A shipping source said Mercator had decided against using the Omvati Prem for Iranian cargoes due to pressure from the US.

"To protect its overall business, Mercator had to take this decision (to halt Iranian voyages). Do you think it's easy to work against US sanctions?" the source said.

US Ambassador to India Nancy J Powell raised the issue that Mercator was using a loophole to help Iran supply oil on February 15 in a meeting with India National Security Advisor Shiv Shankar Menon, oil industry and diplomatic sources said.

An email seen by Reuters in connection with the meeting said the US wanted to discuss Indian companies' deals with Iran "including the transaction that has received press recently".

NIOC normally supplies oil in vessels owned by National Iranian Tanker Company (NITC), a banned entity under US sanctions.

NITC had hired the Omvati Prem through Dubai-based Sea Enterprise, a letter seen by Reuters showed.

NIOC in February informed MRPL that its contract to use the vessel Omvati Prem had been terminated, an oil industry source said.-Reuters