NEW DELHI/SINGAPORE - The Royal Bank of Scotland has halted payments to a Greek ship owner which transported Iranian oil for an Indian shipping company, in line with Western sanctions aimed at hindering Iranian crude exports, shipping sources told Reuters.

The European Union in January placed an immediate ban on new contracts to import, purchase or transport Iranian crude and petroleum products. EU members with existing contracts, however, can honor them until July 1.

India's Great Eastern Shipping Co Ltd has not been able to pay Greek firm Eurotankers, which holds an account with RBS, for using one of its supertankers to ship Iranian crude because the UK-based bank would not clear the payment, the sources said.

Due to financial sanctions the payment could not be released. RBS said they are unable to transmit the money, said one source with knowledge of the matter.

The source said the deal was considered to be a new contract as it was made in the spot freight market. An RBS spokesman declined to comment.

The action by RBS adds to the difficulties India and other Asian oil buyers face in trying to maintain imports of Iranian crude amid sanctions.

Financial institutions are very careful about dealing with Iran related stuff, said Robin Mills of Dubai-based Manaar Energy Consulting.

Even if activity appears to be okay, they do not like to do it because it is too hard to convince anyone they are complying with sanctions while dealing with Iran oil.

In addition to the EU, the United States has also imposed a raft of sanctions on Iran aimed at forcing it to halt its nuclear program which the West believes is being used to develop atomic weapons, but which Tehran maintains is for peaceful purposes.

The Indian shipping company hired the tanker, the Remi, at the end of January to deliver 93,000 metric tons of Iran Heavy crude to Mangalore Refinery and Petrochemicals Ltd. , the sources said. The cargo was delivered to Mangalore port on February 7, according to independent shipping data.

A Eurotankers official, who declined to be named, confirmed payment from Great Eastern was held up and the issue was now in court. All the information has been given in writing, he said in a telephone interview.

Great Eastern did not respond to repeated attempts by Reuters to seek comment.

KEY OIL SUPPLIER

Iran is India's second-biggest supplier of oil after Saudi Arabia, with some $11 billion a year in shipments meeting about 12 percent of India's crude import needs.

But India's refiners are cutting imports as sanctions make supplies from Iran increasingly difficult and vulnerable.

The number of maritime firms willing to transport Iranian crude has already dwindled significantly since the European Union announced it would proceed with the oil embargo, leaving Asian oil buyers to rely more on Iranian-owned tankers.

India's Essar Oil , Iran's second biggest Indian client after MRPL, bought oil in three Iranian vessels in February, according to shipping data.

Insurance problems for shipments have also forced at least one company, Shipping Corp of India , to cancel an Iranian crude delivery last month.

India publicly maintains it will not seek a waiver to U.S. sanctions, and that it sees no need to reduce oil imports from Iran because that is not required under United Nations sanctions.

The government, however, has privately asked refiners to cut Iranian imports by at least 15 percent and could still be considered for a waiver from the sanctions.

(Additional reporting Sudip Kar-Gupta in London; editing by Miral Fahmy)

Royal Bank of Scotland India