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Sri Lanka will begin sending tea to Iran next month in lieu of paying some $250 million owed for oil, Reuters reported on 23 June, as the island country seeks to protect its US dollar foreign exchange reserves and bypass restrictions on trade with Iran due to US sanctions.
"This is very timely for us because we get access to an important market, and Iran and Sri Lanka can trade without relying on dollars," Sri Lanka's Tea Board Chairman Niraj de Mel told Reuters.
"The agreement was to send $5 million worth of tea each month for 48 months, but we plan to start with about $2 million monthly."
The barter agreement to pay for oil purchased in 2012 was first reached in 2021 but is finally set to begin next month.
Sri Lankan government official Ramesh Pathirana said the oil-for-tea barter arrangement would circumvent sanctions imposed on Iran by the US because tea is considered a foodstuff.
He added that the barter payment method means no sanctioned banks will be involved.
Instead, state-run Ceylon Petroleum Corp will provide rupees to pay for tea shipments to Iran via Sri Lankan exporters.
Iranian tea importers will then pay riyals to the National Iranian Oil Company.
Ceylon tea is the country’s largest export crop, providing $1.25 billion in foreign currency from exports last year.
Sri Lanka’s economic problems began after Covid-19 lockdowns shuttered the island’s critical tourism industry, leading to an exchange crisis, with foreign currency reserves falling two-thirds.
The Sri Lankan government sought to make foreign exchange swaps with China, Bangladesh, South Korea, and India while banning imports of products, including food and vehicles, to stem the outflow of dollars.
In 2021, Sri Lanka’s only refinery was temporarily closed down after running out of dollars to buy crude oil.
In March of this year, a $3 billion IMF bailout package was approved in response to the crisis.
Barter trade in the region is becoming increasingly common to bypass the effects of US sanctions and to cope with shortages of foreign currency reserves.
Earlier this month, Pakistan announced a barter trade agreement with Russia, Iran, and Afghanistan to ease the mounting pressure on its depleted foreign exchange reserves.
The barter mechanism allows crude oil, liquefied natural gas (LNG), liquefied petroleum gas (LPG), wheat, iron, and steel to be imported from Russia. In contrast, coal, crude oil, LNG, LPG, fruits, nuts, and vegetables will be allowed to be imported from Iran.
The barter mechanism is necessary for trade with Pakistan’s neighbors because the US government has imposed economic sanctions on all three. Any Pakistani company engaging in financial transactions with Iran, Russia, or Afghanistan would be shut out of the US-dominated global financial system.
Source: https://new.thecradle.co/articles/sri-lanka-iran-bypass-us-sanctions-through-tea-for-oil-barter
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