State-run Indian Oil Corporation (IOC) has teamed up with Iran's Petropars to put forward a $3bn (£1.63bn) joint project to develop a gas field in Iran.
There are plans to develop liquefaction facilities in Iran
The proposal from India's biggest refiner would also see it set up a
liquefaction plant in Iran.
It follows talks between officials from India, Asia's third largest oil user, and Iran, the number two Opec producer.
IOC said a memorandum of understanding had been signed with Petropars, a unit of the National Iranian Oil Co (NIOC).
The agreement came after discussions between India's oil minister, Mani Shankar Aiyar, and his Iranian counterpart, Bijan Zanganeh, in Vienna two months ago.
The agreement was signed "for development of a
joint proposal to be submitted to National Iranian Oil Co. for the proposed integrated project of development of the gas field and setting up of LNG liquefaction facilities".
A feasibility report into the proposed project will be carried out to see how much of the $3bn scheme would be paid for by IOC.
Indian state-run oil companies have been looking for investment opportunities in Iran to agree package deals
which would also involve New Delhi buying Iranian liquefied natural gas (LNG).
India imports more than two-thirds of its crude oil
requirement and output from its ageing oilfields has declined in recent
Meanwhile, demand for energy, as in China, has been rising despite soaring crude oil prices in recent months.
India's Oil and Natural Gas Corporation (ONGC) plans to take a 55% stake from Canadian firm Antrim Energy in an offshore block in western Australia.
In the past few years ONGC has bought oil and gas assets in Angola, Iraq, Libya, Myanmar, Sudan, Syria and Vietnam.