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U.S. President Barack Obama shakes hands with Indian Prime Minister Manmohan Singh ahead of their meeting at Hyderabad House in New Delhi, India. - 


STACEY VANEK SMITH: India has become the latest country to tighten trade sanctions with Iran. The U.S. has been pushing India to do that for years in the hopes that it will put pressure on Iran's nuclear program.

From New Delhi, the BBC's Mark Dummett joins us now. Good morning, mark!

MARK DUMMETT: Good morning.

VANEK SMITH: So Mark, what exactly has India agreed to do?

DUMMETT: This week the Reserve Bank of India instructed the country's lenders to stop using the Asian Clearing Union to process payments for the import of oil or gas with Iran. And this is significant because this system, which was set up in 1974 to help trade between Iran and South Asian countries like India, means that deals between the two can go through each country's central banks, making it much harder for U.S. authorities to trace money flows in and out of Iran. And the U.S. says that black listed Iranian firms have been exploiting this system.

VANEK SMITH: Why is the trading relationship between India and Iran so significant?

DUMMETT: Trade between the two has been rising in recent years and India is Iran's biggest partner by far through this system, the Asian clearing union. Out of a total of $900 million owed Iran through this system in November, $800 million was owed to it by Indian firms.

VANEK SMITH: Why has India made this decision now? Do we have any sense of that?

DUMMETT: No, because India hasn't given any official reason or statement on this issue. But this suspicion of course is that it is done so at the request of the U.S. government. As you know the U.S. and India are becoming increasingly close, economically, diplomatically, strategically. As we saw so well just last month, during Barack Obama's visit to India.

VANEK SMITH: That is the BBC's Mark Dummett. He joins us from New Delhi. Mark, thank you.

DUMMETT: Thank you.