Iran sanctions: Sri Lanka to pay off $251m Iranian oil debt with tea

Sri Lanka is to pay off a $251m Iranian oil debt by sending the country $5m worth of tea every month.

Ramesh Pathirana, a government minister, said the payment method would circumvent sanctions imposed on Iran by the United Nations and the United States because tea is deemed to be a foodstuff.

Sri Lanka has a major debt burden that has been exacerbated by the coronavirus pandemic, which has devastated the island’s vital tourism industry.

"We hope to send $5m worth of tea each month to repay Iran for oil purchases pending since the last four years," Pathirana told Reuters.

The island is also suffering from a foreign exchange crisis, with foreign currency reserves falling two-thirds to just over $2bn since 2019.

A senior member of the country's tea board said it was the first time it had been able to use tea supplies as part of a barter arrangement to settle foreign debt.

Forex crisis

Sri Lanka produces about 340m kilogrammes of tea annually. Last year it exported 265.5m kilogrammes of tea, making it the largest forex-earning crop, with earnings of $1.24bn in 2020.

In a statement, the plantation ministry said: "The recommended scheme will save Sri Lanka much-needed foreign currency since the settlement to Iran would be made in Sri Lankan rupees through the sale of Ceylon Tea."

However, a spokesperson for the Planters Association, which includes all the major plantation companies in Sri Lanka, said such a mode of payment was a "[sticking] plaster solution by the government".

"It doesn't necessarily benefit exporters as we will be paid in rupees, circumventing the free market, and provides no real value to us," said Roshan Rajadurai.