* Formosa says no mechanism to pay Iran for oil
* Signs deal on term supplies of Basra Light crude from Iraq
* Basra spot volume limited after SOMO clamp down on oil resale (Adds MRPL's deal in penultimate paragraph)
By Florence Tan
SINGAPORE, Nov 29 (Reuters) - Formosa Petrochemical will not buy Iranian oil despite being able to benefit from a U.S. sanctions waiver, it said on Thursday, citing the lack of a payment mechanism.
The Taiwanese refiner will replace part of the Iranian oil with Iraqi crude, Formosa spokesman KY Lin told Reuters.
Formosa's decision highlights the challenges Tehran faces in selling its oil despite what the market sees as a generous U.S. exemption to Iran's traditional buyers.
"There is no payment mechanism, so we will suspend Iranian oil loadings for the time being," Lin said.
"So the Iraqi contract is to replace some of the Iranian volume."
Formosa has a long-term contract with the National Iranian Oil Company to buy 2 million barrels of crude every quarter. It last lifted 2 million barrels of Sirri crude from Iran at the end of August, arriving at Mailiao, Taiwan, in mid-September, data from Refinitiv Eikon shows.
To replace Iranian supplies, Formosa has clinched a new term contract with Iraq's Oil Marketing Company (SOMO) for Basra Light crude supplies in 2019, Lin said, declining to disclose volumes.
The company regularly buys about 2 million barrels of Basra Light crude a month from the spot market for delivery to its Mailiao refinery but had refrained from signing on term supplies because of shipping delays at the Basra port in southern Iraq.
The waiting time to load Basra oil has shortened after Iraq added new berths and storage facilities at the port, Lin said.
"It's a trial volume to see how smooth operations will be," he said.
A recent clampdown by Iraq on the resale of cargoes with restricted destinations has also greatly reduced spot trades in Asia, pushing buyers to seek term supplies.
"Spot Basra crude volumes have become limited because SOMO has become stricter with term buyers on destination restrictions," Lin said.
Besides Formosa, Hyundai Oilbank Corp and India's Mangalore Refinery and Petrochemical Ltd have signed a term contract with Iraq for Basra crude for the first time, sources with knowledge of the matter said.
MRPL will buy 1.5 million tonnes per year (30,000 barrels per day) of a mixture of Basra Light and Basra Heavy crude in 2019.
A Hyundai Oilbank spokesman declined to comment. (Reporting by Florence Tan in SINGAPORE Additional reporting by Rania El Gamal in DUBAI, Nidhi Verma in NEW DELHI and Jane Chung in SEOUL Editing by David Goodman and David Evans)