Sri Lanka Settles $20 Million Iranian Oil Debt with Tea

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Sri Lanka announced on Wednesday that it had exported tea worth US$20 million to Iran as part of a barter trade agreement aimed at partially repaying its US$251 million oil debts. The deal, which was discussed during talks between Sri Lankan Prime Minister Dinesh Gunawardena and Iranian Foreign Minister Hossein Amir-Abdollahian, involved the exchange of tea for oil.

The tea-for-oil deal was initially agreed upon in December 2021, but the exports were delayed due to Sri Lanka’s economic crisis, which led to the resignation of then-president Gotabaya Rajapaksa in July 2022.

Under the barter agreement, Iran can acquire tea from Sri Lanka without using scarce hard currency, while Sri Lanka, facing a shortage of foreign currency, can settle its debts with tea exports.

Sri Lankan officials have emphasized that the tea-oil swap does not violate US sanctions on Iran, as tea is considered a food item, and the agreement does not involve Iranian blacklisted banks.

Sri Lanka defaulted on its US$46 billion foreign debt in April 2022 and subsequently secured a US$2.9 billion bailout from the International Monetary Fund (IMF) in early 2023.

Although Ceylon tea historically constituted a significant portion of Iran’s consumption, recent years have seen a decline in its proportion. However, the tea-for-oil deal underscores ongoing efforts by Sri Lanka to address its financial challenges through innovative agreements and partnerships.