History of Ceylon Tea

Sri Lanka, on Wednesday (Feb 21) said that it exported $20 million worth of tea to Iran to partially pay its $251 million oil debt. The first instalment of the tea-for-oil deal was sent years after it was agreed upon in 2021.

Tea-for-oil deal

“So far $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.

The statement also said that Iranian Foreign Minister Hossein Amir-Abdollahian, who is currently in Sri Lanka for a visit, expressed “satisfaction” with the deal.

In 2021, a tea-for-oil deal was struck between Colombo and Tehran which was seen as a win-win for both countries for different reasons.

The barter deal allows sanctions-hit Iran to avoid having to use scarce hard currency to pay for imports of the widely consumed product in the country. Meanwhile, Sri Lanka is allowed to pay with tea as the country is short of foreign currency.

When the deal was agreed upon in December 2021, Tehran said it had agreed to accept a monthly shipment of Ceylon tea from Sri Lanka in exchange for settling a $251 million debt from Iranian oil supplied to the island nation nine years ago.

However, Sri Lanka was hit by an economic crisis forcing then-president Gotabaya Rajapaksa to step down in July 2022. This led to a years-long delay in the shipment of the tea to Iran.

Colombo defaulted on its $46 billion foreign debt in April 2022 but managed to secure a $2.9 billion bailout from the International Monetary Fund (IMF), early last year.

Does the deal violate sanctions against Iran?

Sri Lankan officials have said that the tea-for-oil deal does not violate the sanctions against Tehran imposed by Washington. Since tea was a food item it is exempted from restrictions,and the deal did not involve Iranian-blacklisted banks, they added.

Tehran has been hit hard by the United States imposed restrictions since it pulled out of the 2015 Iran nuclear deal and began reimposing crippling financial sanctions.

Notably, Ceylon tea, known by the island’s colonial-era name, made up nearly 50 per cent of Iran’s consumption in 2016.