(Repeats story that ran late on Friday with no changes to text)
* Iran iron ore exports to China up 35 pct in Jan-July
* Iran sponge iron export to India set to jump to 500,000 T in 2013/14 -traders
* Sponge iron export routed through Dubai, Turkey - source
By Krishna N Das and Silvia Antonioli
NEW DELHI/LONDON, Aug 23 (Reuters) - Iran is raising its exports of iron ore and iron products to China and India in an attempt to replace at least a small part of the massive revenue that has been lost due to sanctions on its oil sales.
While Iran's oil exports have halved in the last few years due to western sanctions over the country's disputed nuclear program, iron ore exports have grown by more than 60 percent over the same period to an annual rate of about 25 million tonnes, worth about $3 billion a year at current prices.
The extra billion dollars a year that Iran is gaining from the additional iron exports, however, is still very small when compared with the loss in oil revenue of roughly $35 billion a year.
"Sanctions have forced Iran to look at other ways of earning export revenues besides oil and gas, and the mineral sector has been doing pretty well. I know there has been quite a substantial increase in things like iron ore exports," said Mehdi Varzi, a former official at the state-run National Iranian Oil Co, who now runs an energy consultancy in the UK.
Iran's oil revenue was $69 billion in 2012, according to estimates from the U.S. Energy Information Administration.
It has overtaken India to become the fourth-largest iron ore supplier to China in the last year. Iran's exports to the world's top iron ore consumer rose 35 percent to 13.4 million tonnes in the seven months to July, according to Chinese customs figures.
"We're selling more iron to India and China," said an Iranian industry source on condition of anonymity. "No money is coming directly to Iran because of the issues with currency (trading in dollars), so in some cases there are some barter deals, otherwise cargoes are paid mostly with cash."
Mines are "being opened every week" in Iran as businessmen there see it as a profitable business and one of the few sectors not sanctioned yet, said the source.
Chinese buyers of iron ore see Iran as a welcome alternative to leading suppliers Australia and Brazil.
While China primarily buys raw iron ore, the Islamic Republic is also boosting its exports to India of sponge iron, often referred to as direct-reduction iron.
Sponge iron is an alternative steelmaking ingredient produced by heating iron ore at a temperature high enough to burn off its carbon and oxygen content and is economically viable where natural gas is abundant and cheap.
Indian makers of sponge iron, the world's top producers, who are already grappling with high production costs, are suffering from the more aggressive Iranian exports.
Iran, the world's second-largest producer of sponge iron, has boosted its output of the iron product by about 50 percent so far this year, according to data from the World Steel Association.
Iranian sponge iron exports to India have risen to 80,000 tonnes in April-July from 45,000 tonnes for the whole of fiscal year ended March, said Prakash Tatia, a director at Mumbai-based sponge iron maker Welspun Maxsteel.
Tatia, who is also the vice-chairman of India's Sponge Iron Manufacturers Association (SIMA), said the data was based on inputs from port sources and traders in India and overseas.
Some of Iran's growing iron ore production is being used to satisfy higher domestic consumption, since it is trying to make up for a collapse in imports of steel, a sector heavily affected by Western sanctions.
"As far as Iran goes I think the increase in iron exports is surprising to most given the sanctions imposed on them," said Kashaan Kamal, research analyst at commodity brokerage Sucden Financial in London.
Like iron ore, sponge iron does not directly come under Western sanctions, but if the exporter is part of Iran's Islamic Revolutionary Guard Corps or is on the U.S.' Specially Designated Nationals list, this could trigger sanctions on the foreign buyer, said Nathan Carleton, communications director at advocacy group United Against Nuclear Iran.
"If this sponge iron is also being used as a medium for barter, this could also trigger sanctions," Carleton said.
Buyers in India, however, appeared unconcerned about such a risk.
Welspun's Tatia said Iran was targeting selling 500,000 tonnes of sponge iron to India this fiscal year to take advantage of a drop in Indian output due to a shortage of iron ore and gas. He said the figure was given to Indian traders by Iranian ore exporters.
At current sponge iron prices of about $400 a tonne, this would represent revenue of about $200 million for Iran, a drain on India given its current account deficit, said Tatia.
Indian sponge iron companies are growing increasingly concerned over higher volumes of more aggressively-priced Iranian imports, said Deependra Kashiva, executive director at SIMA.
Foreign traders route their Iranian products via other countries to avoid any difficulty in getting letters of credit from banks, Kashiva said.
"All the countries surrounding Iran are benefiting from the situation as everyone has to buy via Dubai, via Turkey," said the Iranian industry source. (Additional reporting by Ruby Lian in SHANGHAI, Alex Lawler and Peg Mackay in LONDON, and Manolo Serapio Jr in SINGAPORE; Editing by Muralikumar Anantharaman)