* Iran paid $87 mln for Romanian rig to bypass sanctions

* It was never delivered, prompting investigation

* Case causes public stir, debated by parliament

* Broker says he is targeted by interests in Tehran

DUBAI, Sept 4 (Reuters) - Four years after Iran spent $87 million to buy an oil drilling rig that was never delivered, the broker in the deal has given his side of a story he describes as a cautionary tale for Western investors impatient for an end to sanctions.

Speaking to clear his name after being accused by a former Iranian official and conservative media close to security forces of stealing some of the money, Reza Mostafavi Tabatabaei gave a rare first-hand description of the case.

Over the last several months, "the case of the missing rig" has seized newspaper headlines in Iran, trended on social media and become the subject of debate in parliament. The oil ministry is investigating and parliament's speaker has asked the head of its energy commission to look into it.

An Iranian now living in Dubai, Tabatabaei told Reuters he had not been formally charged, but his family in Iran had come under pressure from the authorities and he had been blocked from accessing tens of millions of dollars of assets in the country.

His account, which could not be fully verified, sheds light on the complex ways in which Tehran has avoided sanctions.

The U.S.-led penalties may be lifted early next year following an international agreement on Tehran's disputed nuclear programme in July, clearing the way for foreign oil firms to return to Iran.

In 2011, sanctions made it difficult for Tehran to rent oil drilling rigs, so the Iranian Offshore Engineering and Construction Co (IOEC) approached Tabatabaei and asked him to find one to buy, both he and state media said.

Tabatabaei, a veteran trader of oil industry equipment in the Gulf, said he found a rig owned by Romanian company Grup Servicii Petroliere SA (GSP) but because of sanctions on the IOEC, the deal had to be routed through a trading company registered in Turkey.

GSP Communications Director Radu Petrescu said the company did not know Tabatabaei. "His accusations are absurd," he said, adding, "the information from this so-called broker is not true". He said GSP had had two oil rigs in Iran in the past and would return to Iran if sanctions are lifted.

SANCTIONS-BUSTING

Tabatabaei said the rig cost $67 million but the IOEC approved a payment of $87 million on the grounds that the extra was needed to bypass the sanctions.

"Because of the sanctions, Iran didn't have enough money to pay for the rig," he said. "Because of the delay in payments, the selling company cancelled the contract."

Even though the rig was never delivered to Iran, Tehran ended up paying out all of the $87 million, Oil Minister Bijan Zanganeh was quoted by his ministry's news agency Shana as saying. Zanganeh, who was not in office at the time of the deal, did not say where the funds were thought to have gone.

Some Iranian media reports have said the rig is now operating in Mexico.

"I was supposed to receive $3 million as a broker but most of the money went to the pockets of people in the IOEC who were involved in the contract," Tabatabaei said.

Morad Shirani, an adviser to state-linked Iranian Offshore Engineering and Construction Co (IOEC), was arrested in Tehran this week as part of a judicial investigation into possible corruption related to the deal, state media said.

An attempt to reach Shirani or a representative for comment was unsuccessful and it was not clear whether he or anyone else has been charged.

An IOEC spokeswoman in Tehran, contacted by telephone, said the firm's policy was to avoid commenting on the oil rig case, which was not the responsibility of its current management.

NO GUARANTEES

Ali Taheri Motlagh, head of the IOEC when the deal was done, told the Jomhuri Eslami newspaper last month sanctions had made it impossible for Iran to guarantee delivery of the rig or even trace which accounts the money was going into.

"We used to do things hoping God would help us," he was quoted as saying.

He told the newspaper the Turkish trading company actually belonged to Tabatabaei, who he said had kept some of the money it received - an allegation Tabatabaei categorically denied.

Tabatabaei said he himself was excluded from all meetings and correspondence between IOEC and the trading company and the rig owner over the deal at early stage, so he does not know either where the money was transferred to.

The oil ministry is investigating the deal and parliament's speaker has asked the head of its Energy Commission to investigate. Judicial authorities have not commented apart from saying the case is still open and several people are under investigation.

Tabatabaei told Reuters he was innocent of any wrongdoing and was being targeted by politically well-connected people in Tehran, who he said were making him a scapegoat. He declined to name them.

"The missing oil rig case shows that not only sanctions have damaged Iran's oil industry but also corruption, mismanagement, political rivalries and the influence of security and military forces," he said.

This article was written by Bozorgmehr Sharafedin for Reuters on Sep. 6, 2015.