NEW DELHI: The Manmohan Singh government will have to tread on a diplomatic tightrope with oil minister M Veerappa Moily suggesting India may save nearly $8.5 billion (around Rs 57,000 crore) by importing cheaper crude from Iran which faces UN sanctions in the wake of its nuclear programme.

In a note to Prime Minister Manmohan Singh and finance minister P Chidambaram, Moily has said that so far this year, India has imported 2 million tonnes of crude from Iran and an additional 11 million tonnes would pare the forex outgo by almost $8.5 billion, assuming oil price at $105.

Last year, India had imported a little over 13 million tonnes from Iran and Moily has suggested that state-run oil companies should be asked to maintain their overall crude imports at last year’s level.

The Iran gambit is central to Moily's attempt to reduce India's oil bill by $20 billion but will need a reversal of India's recent attempts to reduce business with the regime in Tehran.

But the need to control an expanding deficit — fueled by a weak rupee — is becoming urgent, and India may have to repair ties with Iran that have hit an air pocket over the Iranian security forces detaining an Indian ship transporting Iraqi crude. India will need to display some creative diplomacy to tip toe around international sanctions and US sensibilities.

On August 12, even Chidambaram had spoken of importing more crude from Iran as part of his drive to contain current account deficit within the $70 billion target for this financial year. He had, however, made it clear that the operations had be undertaken without breaching UN sanctions.

Although several Asian countries, including India and China, have been provided flexibility, the government has reduced its dependence on Iran. In 2012-13, India imported about 7.2% of its oil from Iran, compared to 10.5% in the previous year.

India imports over 70% of its oil requirement, which is one of the key drivers of India’s import bill. In the absence of a rise in exports, the trade and current account deficits have widened, adding to the pressure on the rupee.

But unlike imports from other countries, India can make the payments to Iran through a rupee account, which was created as part of the settlement mechanism to deal with the UN sanctions.

Moily’s plan is in response to the PM's call to the ministry seeking a $25 billion cut in the oil import bill to narrow the current account deficit. He has suggested several measures to reduce the oil import bill by $19-20 billion this fiscal.