The state-run Hindustan Petroleum Corp (HPCL.NS) will double the volume of Saudi crude it

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imports in an annual deal beginning in April, two industry sources with direct knowledge of the matter said on Monday, in a move that could replace some of its Iranian supplies.

Indian refiners are looking for ways to gradually replace their imports of Iranian oil, given that global sanctions could shut a mechanism through Turkey's Halkbank that allows them to make payments to Tehran.

India is Iran's second-biggest oil client after China, buying 350,000-400,000 barrels per day.

Tighter U.S. sanctions require buyers of Iranian oil to reduce imports from the Islamic Republic or face the threat of financial penalties in the United States.

Halkbank has already refused to open an account for state-run refiner Bharat Petroleum Corp (BPCL.NS) for oil from Iran.

For this month, Saudi Aramco, the national oil company of Saudi Arabia, has agreed to supply extra 4 million barrels of oil, or about 129,000 bpd, to India, industry officials said.

The Kingdom will supply 2 million barrels to Indian Oil Corp (IOC.NS) and 1 million barrels each to BPCL and Hindustan Mittal Energy Ltd HMEL.L, a joint venture of HPCL and steel tycoon Lakshmi Mittal.

HMEL, which owns an 180,000 bpd Bathinda refinery in northern India, does not have an annual deal with Saudi Aramco.

"BPCL's additional purchase for January could be due to Iran as they have not been to open an account with Turkey's Halkbank for payment to Iran," said one of the sources.

The Saudis will also in February supply 1 million barrels to BPCL for its 120,000 bpd Bina refinery in central India.

A senior BPCL official said the company has not purchased Iranian oil since November due to payment problems. "Unless the payment issue is resolved, how can we buy oil from Iran?" the official said.

Indian refiners and petroleum ministry officials earlier on Monday held a meeting to explore alternatives way to pay for Iranian oil imports.

HPCL is the second Indian refiner after Mangalore Refinery and Petrochemicals Ltd (MRPL.NS) to increase supplies under an annual deal with Saudi Arabia.

The new deal with HPCL will be for 60,000 barrels per day (bpd) from April to the following March, said the sources, versus around 30,000 bpd this year.

HPCL is keen to continue its term deal of 70,000 bpd with Iran if the Islamic republic continues to offer 90 days of credit and if global sanctions do not hit supplies and the existing payment mechanism, said one of the sources.

HPCL operates a 130,000 bpd refinery at Mumbai on the west coast and a 166,000 bpd plant in southern India.

Iran has so far not cut supplies to India, the chairman of Mangalore Refinery, the biggest Indian client of Iran, said last week.

Financial sanctions signed into law by President Barack Obama on New Year's Eve make it difficult for pay for Iranian oil. The European Union is expected to announce tough measures of its own at the end of the month.

Washington and its allies are imposing the measures to force Iran to abandon a nuclear programme, which they say is aimed at producing an atomic bomb. Iran says the programme is peaceful.