Sri Lanka settles US$20 million Iranian oil debt with tea

The deal allows sanctions-hit Iran to avoid using scarce hard currency to pay for imports of popular tea, and helps Sri Lanka which is also short of foreign funds

The tea-for-oil deal was agreed upon in December 2021, but exports were delayed by Colombo’s economic crisis

Reading Time:2 minutes

Cash strapped Sri Lanka paid a portion of its oil debt to Iran with tea. Photo: Shutterstock

Published: 9:00am, 22 Feb 2024

Cash-strapped Sri Lanka said on Wednesday it had exported tea worth US$20 million to Iran to partially repay its US$251 million oil debts, with Colombo saying Tehran’s visiting foreign minister had expressed “satisfaction” at the deal.

“So far, US$20 million worth of tea has been exported to Iran under the barter trade agreement,” Sri Lankan Prime Minister Dinesh Gunawardena’s office said in a statement after talks with Iranian Foreign Minister Hossein Amir-Abdollahian.

The tea-for-oil deal was agreed upon in December 2021, but exports were delayed by Colombo’s economic crisis that forced then-president Gotabaya Rajapaksa to step down in July 2022.

Sri Lanka’s Foreign Minister Ali Sabry (right) shakes hands with his Iranian counterpart Hossein Amir Abdollahian in Colombo on Tuesday. Photo: AFP

The barter deal allows sanctions-hit Iran to avoid having to use up scarce hard currency to pay for imports of popular tea.

It also allowed Sri Lanka to pay with tea, as the country was short of foreign currency.

Sri Lankan officials have previously said that the tea-oil swap did not break US sanctions on Iran, since tea was a food item and the deal did not involve Iranian blacklisted banks.

The island nation defaulted on its US$46 billion foreign debt in April 2022 and secured a US$2.9 billion International Monetary Fund (IMF) bailout early last year.

Ceylon tea, known by the island’s colonial-era name, made up nearly half of Iran’s consumption in 2016. However, the proportion has declined in recent years.