Tea-for-oil barter between SL and Iran to kick off in July

• SL plans to start with sending US $ 2mn worth of tea per month
• Final documents yet to be received to start exports

Sri Lanka will start bartering with Iran, starting next month, in an effort to settle the US $ 250 million owed for oil, a Reuters report shared. Sri Lanka’s Tea Board Chairman Niraj de Mel told Reuters that the move is timely for the island nation since it opens access to an important market. It will also allow the two nations to trade without relying on dollars.

The barter was agreed upon in 2021 for oil imported in 2012. However, the exchange was delayed after Sri Lanka’s dollar shortage last year plunged the economy into the worst financial crisis witnessed in history.

“The agreement was to send US $ 5 million worth of tea each month for 48 months but we plan to start with about US $ 2 million per month,” de Mel shared.

Ceylon Tea is Sri Lanka’s highest foreign exchange-earning crop and fetched US $ 1.25 billion.

Iran has been one of Sri Lanka’s main tea buyers but exports have fallen steadily from US $ 128 million in 2018 to US $ 70 million in 2022, as U.S. sanctions on Iran hit trade.

Under the barter programme, state-run Ceylon Petroleum Corp that bought the oil will give rupees to the Tea Board to ship tea via Sri Lankan exporters. Iranian tea importers will then pay riyals to the National Iranian Oil Company, de Mel said. “We are awaiting the final documents and hope to start exports in July,” he added.

Sri Lanka’s foreign exchange reserves grew to US $ 3.5 billion at the end of May – a 14-month high – helped by increased remittances and tourism inflows, after securing a US $ 2.9 billion bailout from the International Monetary Fund.