India will make a $700 million oil payment to Iran on Wednesday, sources said, the first release of such funds after the July deal that sets the roadmap for the lifting of sanctions aimed at Tehran's nuclear activities.Partial payments of some of Iran's oil dues have been allowed since early 2014 on the basis of a temporary deal that was a prelude to the July agreement, which will eventually end economic sanctions imposed on the country in exchange for curbs to its disputed nuclear programme.Toughened sanctions put in place in early 2012 had halved Iran's oil exports and strangled its oil revenue, crippling its economy and finally bringing it to the negotiating table.The sanctions are widely expected to be terminated in 2016 if Iran complies with terms of deal agreed on July 14. Refiners will be making payment in rupees equivalent to $700 million to the state-run UCO Bank on Wednesday this week, said three sources with direct knowledge of the matter.They said UCO Bank has already bought dollars in the forward markets for payments into the Central Bank of Iran's account with Oman's Bank Muscat.The sources said U.S. Treasury's Office of Foreign Assets Control (OFAC) has already approved the banking mechanism and payment of $1.4 billion by Indian refiners in two equal instalments to Tehran. Timing for the second installment is not yet known, the sources said. A U.S. Treasury spokeswoman declined comment.Indian refiners have been depositing 45 percent of their oil payments to Iran in rupees with UCO Bank since 2012. Tehran uses the funds, currently more than 170 billion Indian rupees ($2.57 billion), for importing non-sanctioned goods from New Delhi.Refiners have been holding the remainder after a route to pay for oil through Turkey's Halkbank was stopped in 2013 under pressure from sanctions, although payment of some of those funds was allowed after the initial temporary deal. Indian refiners owed about $6.6 billion to Iran as of the end of August.Essar Oil owes about $3.1 billion, Mangalore Refinery and Petrochemicals Ltd $2.8 billion, followed by Indian Oil Corp, which owes $581 million. HPCL-Mittal Energy Ltd (HMEL) owes $97 million and Hindustan Petroleum Corp has to pay $29 million.Sources said HMEL, which last made purchases from Iran in 2013, has not been participating in the payment mechanism because of a sharp decline in the rupee since then.The remaining four companies will pay Iran amounts in proportion to what they owe, the sources said. HMEL Chief Executive Prabh Das declined to comment.India is Iran's biggest oil client after China, although New Delhi has reduced purchases under pressure from the sanctions. Tehran is now its seventh-biggest supplier, down from the No. 2 spot in the pre-sanctions era.