The two countries had agreed to settle bilateral trade in rupees after it became difficult for India to route payments to Iran because of the sanctions.

India is Iran’s second-biggest oil client after China.

While Iran is pursuing diplomacy through negotiations with so-called P5+1 group consisting United States, Britain, France, Russia, China and Germany, to settle longtime dispute with west over its nuclear program, US is using unilateral sanctions to pressure Iran to abandon its nuclear program, which the West believes is aimed at making a bomb but Iran insist is for civilian use.

India exported goods from Iran worth $3.36 billion in 2012-13 while its imports were $ 11.6 billion, prompting New Delhi to look for more items to sell to the country.

“We visited Iran and suggested sectors they could look at including engineering, power, steel, auto and pharma. They are keen on automobile and pharma for now,” said a commerce ministry official, adding that the country did not appear keen on a larger trade agreement.

Under the rupee arrangement, India makes part payment into a rupee account maintained with UCO BankBSE 0.06 %. Iran uses this account to import goods from India, reducing the need for routing dollar payments through third country.

A delegation led by Indian commerce secretary SR Rao had visited Iran last month when India presented many import options to Iran to reduce the $11 billion trade deficit it ran with the country last year.

Automobiles and pharmaceuticals are India’s biggest exports adding up to $18.4 billion and $14.6 billion in 2012-13. Currently, India’s exports comprise mainly of agriculture and processed goods and more recently, pharma. Iran had rejected Indian wheat citing quality issues.

The arrangement suits Iran, which was importing most of the automobiles and auto components from EU, but after the sanctions were imposed is facing some difficulty. Indian automakers already meet the stringent quality norms and are in position to meet Iranian demands.

The Iranian industry is working at one-third lower capacity due to problems in importing auto parts. Iran has most European and Japanese, South Korean brands of cars, trucks and buses. India enjoys competitive advantage as it is being driven by R&D, said FIEO.

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The meeting is a follow up to last round of talks between Iran and the P5+1 (consisting of US, Britain, France, Russia, China and Germany) held in Almaty, Kazakhstan on April 5-6.

According to a source close to the Iranian negotiating team, the Secretary of Iran’s Supreme National Security Council, Saeed Jalili is accompanied by his deputy Ali Bagheri.

“Even though it took a long time [since Almaty-II talks] but we are waiting to receive P5+1 answers to Iran’s proposal,” said Jalili after he arrived in Istanbul.

Answering to question regard possible effect of Iran’s presidential election on nuclear talks, Jalili said: “Nuclear issue is a national one and all parties have consensus on this. So the presidential election has will not affect [the talks].”

 After tonight’s meeting, two sides will likely issue a joint statement and Dr. Jalili, a candidate of Iran’s June 14 presidential election will hold a press conference in the Iranian consulate on Thursday.

“We are ready to listen to the results of Mrs. Ashton’s meeting with foreign ministers of the P5+1,” said the source speaking on condition of anonymity.

Catherine Ashton who represents the P5+1 said in the end of Almaty-II talks that the group delegation will go back to capitals to evaluate the process and later she will be in touch with Dr. Jalili in order to see how to go forward.

Ashton likely to get information about the Iran’s upcoming presidential election from Jalili, who may be the next Iranian president as he announced his candidacy for the upcoming Iranian presidential election.

Iran also started a new round of negotiations with the International Atomic Energy Agency (IAEA) in Vienna on Wednesday.

The ongoing talks are the 10th round of the negotiations between Iran and the IAEA over the Islamic Republic’s nuclear energy program since early 2012.

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