WASHINGTON - The United States recognizes that India will keep buying oil from Iran but is not actively suggesting ways to pay for it without violating international sanctions on Iran, a US Treasury official said.

India has been searching for an acceptable system to make payments to Tehran for some $12 billion worth of oil annually since December, when, under pressure from Washington, it halted use of a long-standing clearing system run by Asian central banks.

"I suspect there's a solution out there to this problem, but I guess as best we can tell so far, the Indians haven't figured out what it is," the Treasury official told Reuters on condition of anonymity.

For now, fast-growing India is continuing to import about 400,000 barrels of oil per day from Iran, essentially on credit.

"We've said to the Indians that we recognize that they're going to continue to purchase oil from Iran and it's probably the case that the Iranians are eventually going to want to get paid for it," the official said in a recent interview. "They need to figure out a way to make these payments and I think we've tried to be helpful."

Although the United States wants allies to cut ties to Iran to pressure Tehran to halt its nuclear program, the official's comments suggest some flexibility from Washington over the plight of India, which has long depended on Iranian crude.

India imports more than two-thirds of its oil needs and depends heavily on volumes from the Middle East to power its economy, which is growing at around 9 percent per year. Iran is its second biggest supplier after Saudi Arabia.

The Treasury has cautioned Indian officials to avoid channeling payments through Iranian banks that have been blacklisted under US, European Union and UN sanctions aimed at curbing Iran's nuclear program.

But Washington has refrained from suggesting acceptable alternative methods, the official said.

"I don't think we are in the business of marketing Iranian oil and India is a sophisticated country with a lot of capability and it would be sort of presumptuous to tell them how they should solve this," the official said.

PAYMENTS VIA BANK IN GERMANY

In March, India made arrangements to channel oil payments through Hamburg-based Europaeisch-Iranische Handelsbank (EIH), which was blacklisted by the United States last year but was not shut down by German regulators.

Some funds were transferred through EIH, which the official called "a disappointment", but German officials subsequently announced that the oil payments would no longer be allowed through the bank.

In all, some 17 Iranian state banks have been blacklisted by US authorities, leaving few channels for payments to Iran.

Other countries, such as Japan and South Korea, continue to purchase oil from Iran, but the official said those arrangements are eased by two-way trade flows that allow payments that do not require a third currency for settlement.

India exports little to Iran and does nearly all the importing, making settlement a "tricky, difficult problem to resolve," the official added.

An Indian oil ministry source told Reuters that India was exploring payments via Turkey as one possible option.

Iranian state-owned Bank Mellat continues to operate branches in Turkey despite US and EU sanctions against it, but the Treasury is trying to persuade Turkish officials to shut them down and Turkish banks to cut ties with Mellat.