Sri Lanka has signed a tea for oil deal with Iran, allowing the former to settle its huge pending oil imports dues worth over $250 million, by exporting tea to Tehran over the next several months. The deal, signed on Tuesday in Colombo, will bypass US sanctions on Iran.  Ceylon Petroleum Corporation, Sri Lanka’s state-owned oil firm, owes millions to the National Iranian Oil Company. And US sanctions have barred banks from dealing with Iranian banks, said Sri Lanka’s Ministry of Plantations Industries. 

“This scheme will not violate any UN or US sanctions since tea has been categorized as a food item under humanitarian grounds while none of the black listed Iranian Banks will be involved in the equation,” Sri Lanka’s Plantation Ministry said in a statement, reported EconomyNext. 

“Since the Iranian authorities have been repeatedly highlighting the importance of the early settlement of the debt, this scheme will enable the Ministry of Finance to make the settlement in local currency through trenches of USD 5 million equivalents.”

Under the deal, signed on Tuesday, Sri Lanka’s Treasury will release each month 5 million dollar equivalent in rupees to the Sri Lanka Tea Board, a state-run industry regulator, and promotion office. The Tea Board would subsequently pay individual exporters in rupee at the central bank exchange rate.

For Sri Lanka, which is going through its worst foreign exchange crisis, the deal comes as a huge relief. Importantly, tea, Sri Lanka’s most exported commodity, brings over $1 billion annually. In 2020, it exported tea worth over $1.2 billion. 

However, over the last few years, the country’s export earnings from tea are on a steady decline, as it struggles to fetch good prices due to quality issues. Similarly, its tea to exports to Iran has declined since 2013 due to US sanctions, which left exporters without proper transaction channels. 

“As at present the payments are usually channeled through intermediary countries and on many occasions, export proceeds are received in installments incurring inordinate delays,” the Plantation Ministry said in the statement. It added, “the additional US sanctions on Iran are creating further impediments for Sri Lanka to export tea to that destination.”

(SAM)