The United States said it would exempt seven emerging economies including India from tough new sanctions after they cut back on oil from Iran, but the punishment still loomed for China.
Secretary of State Hillary Clinton added India, Malaysia, South Africa, South Korea, Sri Lanka, Turkey and Taiwan to the list of those exempt from the sanctions. In March, she made exemptions for European Union nations and Japan.
The decision was announced two days before Clinton meets Indian officials for annual talks. The move resolves one of the biggest points of tension in years in the growing relationship between the world's two largest democracies.
Under a law approved last year that irritated some US allies, the United States starting on June 28 will penalize foreign financial institutions over transactions with Iran's central bank, which handles sales of the country's key export.
Clinton said the seven economies exempted on Monday have all "significantly" reduced crude oil purchases from Iran. She cast the exemptions as proof of success in the US campaign to put pressure on Iran's clerical regime, which Israel and some Western officials fear is seeking a nuclear bomb.
"By reducing Iran's oil sales, we are sending a decisive message to Iran's leaders: until they take concrete actions to satisfy the concerns of the international community, they will continue to face increasing isolation and pressure," Clinton said in a statement.
However, the United States did not announce an exemption for China -- which is heavily dependent on oil from Iran and elsewhere to power its giant economy. Officials said that the United States remained in talks with Beijing.
"We have informed our Chinese colleagues fully about the scope and urgency" of the sanctions, a senior US official told reporters on condition of anonymity.
But the official said that China -- one of six nations in talks with Iran that resume next week in Moscow -- was a "very important partner" on the nuclear row.
"We may have different perceptions of sanctions at different times, but one of the things that has been very important is that China has agreed to this dual-track process of pressure as well as persuasion," the official said.
Chinese President Hu Jintao called Friday on Iran to be "flexible and pragmatic" on its nuclear program. Some industry experts say that China, despite its public stance, has been quietly diversifying from Iranian oil.
A number of countries were angered by the US law, arguing that only the UN Security Council has the right to slap sanctions and that the reductions in oil would jeopardize an already shaky economic recovery.
But Iran's arch-rival Saudi Arabia has opened its spigots to make up for any shortfall from Tehran. To the surprise of some forecasters, oil prices have been declining despite the tensions surrounding Iran.
The International Energy Agency estimated that Iran was not selling up to one-quarter of the 3.3 million barrels it produced each day in April.
India has said that it will cut its purchases of Iranian oil by 11 percent. India has historically enjoyed warm relations with Iran but it tried to play down differences when Clinton visited last month.
President Barack Obama's administration hopes to exert economic pressure on Iran in part to avert an attack by Israel, whose prime minister, Benjamin Netanyahu, has not ruled out the use of force.
Representative Ileana Ros-Lehtinen, the Republican head of the House Foreign Affairs Committee, criticized the Democratic administration for the exemptions, saying it was not tough enough on Iran.
"If the administration is willing to exempt all of these countries, who will they make an example out of?" she said.
The Obama administration has repeatedly voiced concern that an Israeli strike would be devastating and potentially fuel an arms race in the region.
Clinton, in her statement, renewed her call on Iran to "engage seriously" to resolve international concerns.
"Iran has the ability to address these concerns by taking concrete steps during the next round of talks in Moscow. I urge its leaders to do so," Clinton said.
Iran contends that its nuclear program is for peaceful purposes. US intelligence, while concerned about Iran, has not concluded that Iran is building a nuclear weapon.