US Secretary of State Hillary Clinton has added India, South Africa, South Korea, Malaysia, Sri Lanka, Turkey and Taiwan to the list of countries exempt from sanctions, which already includes the European Union and Japan.

Under a sanctions law approved last year that irritated some US allies, Washington will penalize foreign financial institutions for transactions with Iran's central bank, which handles the sales of the country's oil exports.

Clinton said the seven countries had significantly reduced oil purchases from Iran in a move designed to further pressure Tehran to cease its efforts to develop nuclear energy and possibly nuclear weapons.

Toeing a tricky line

The US decision was announced just before scheduled annual talks between Clinton and Indian officials and resolves one of the biggest sticking points in relations between Washington and New Delhi. India, in the past, has been Iran's second largest oil buyer, after China.

"By reducing Iran's oil sales, we are sending a decisive message to Iran's leaders. Until they take concrete actions to satisfy the concerns of the international community they will continue to face increasing isolation and pressure," Clinton said in a statement.

However, the United States did not announce an exemption for China, which is heavily dependent on oil from Iran to fuel its burgeoning economy, ramping up pressure on a key US trading partner in Asia.

Beyond the 27-nation European Union, which has banned Iranian imports, beginning in July under separate sanctions, other buyers of Iran's crude have pledged to cut purchases by up to a fifth. The problem is keeping pressure on Iran while, at the same time, avoiding a spike in global oil prices

What happens next?

Supporters in the US government of tough sanctions against Iran believe China is receiving clandestine shipments of oil from Iran, which is known to have disabled tracking devices on some of its tankers.

Senior US officials have sidestepped questions about this issue, but have said that discussions with Beijing have been constructive.

So far, since the start of this year, the cuts in Iranian oil imports by the international community and the threat of sanctions against those who do not reduce imports have helped drain Iran's oil revenues by an estimated $10 billion (7.5 billion euros).

But the bigger issue for markets, analysts say, will be whether separate European sanctions blocking access to tanker insurance cause the global shipments of oil to grind to a halt as of July 1.

Author: Gregg Benzow (dpa, AFP, Reuters)
Editor: Anne Thomas