India and Iran have agreed to set up a mechanism for payment of crude oil and ensure bilateral trade. A Finance Ministry statement said both sides agreed that the mechanism will cover the payment to Indian exporters and some other areas. The two countries have decided to continue their dialogue on the issue.

Earlier, Iran had threatened to stop crude oil supplies to India if a mechanism to pay for imports is not found quickly. AIR correspondent adds that Iran is second only to Saudi Arabia as an oil supplier to India, while India is Iran's second-biggest crude buyer after China, accounting for about 20 per cent of its exports.

Indian firms have been struggling to pay Tehran because of international sanctions imposed over Iran's controversial nuclear programme. The sanctions include banking restrictions.