Sri Lanka announced that starting next month, it will begin repaying its $250 million oil debt to Iran, dating back 11 years, by sending two million dollars worth of tea to Iran each month. This means that the full repayment of Sri Lanka's debt to Iran could take about ten years. A Sri Lankan official confirmed this news to Reuters on Friday. The country is trying to increase its tea sales to an important market while also protecting its foreign reserves. The agreement for this exchange was made in 2021 and pertains to oil imported from Iran in 2012. However, after an unprecedented dollar shortage in Sri Lanka last year, which plunged the country into its worst financial crisis in over seven decades, the exchange was delayed. Niraj De Mel, head of the Sri Lanka Tea Board, told Reuters, 'This is very timely for us as we have access to an important market, and Iran and Sri Lanka can trade without relying on the dollar.' He added, 'The agreement was to send five million dollars worth of tea per month for 48 months, but we intend to start with about two million dollars per month.' According to government data, Ceylon tea is the most popular product from Sri Lanka globally and generated $1.25 billion for the country last year. Iran is one of the main buyers of Sri Lankan tea, but exports have steadily decreased from $128 million in 2018 to $70 million last year due to U.S. sanctions affecting trade with Iran. Official statistics show that a significant portion of Sri Lankan tea is currently sent to Iran via the United Arab Emirates, which has more than doubled its tea imports from Sri Lanka, rising from $48 million five years ago to $118 million last year. Under the exchange program, a state-owned company that buys Iranian oil will provide rupees to the Tea Board to send tea through Sri Lankan exporters. Niraj De Mel stated that Iranian tea importers will then pay in rials to the National Iranian Oil Company. He added, 'We are waiting for the final documents and hope to start exports in July.' Sri Lanka's foreign reserves increased to $3.5 billion at the end of May—the highest level in 14 months—due to increased remittances and foreign tourists following a $2.9 billion financial assistance guarantee from the International Monetary Fund.
Sri Lanka to Repay $250 Million Oil Debt to Iran with Tea
Sri Lanka will repay a $250 million oil debt to Iran by exporting tea, starting next month. This arrangement, confirmed by Sri Lankan officials, aims to boost tea sales while navigating economic challenges. The deal highlights efforts to conduct trade without relying on the dollar amidst ongoing financial difficulties.
👥 Key Players
📰 What Happened
Sri Lanka will start repaying its $250 million oil debt to Iran by exporting tea, beginning next month. This barter agreement allows Sri Lanka to manage its foreign reserves while maintaining trade with Iran despite U.S. sanctions.
- Sri Lanka will send $2 million worth of tea to Iran monthly.
- The debt repayment plan was delayed due to Sri Lanka's financial crisis.
💡 Why It Matters
📚 Background
Sri Lanka is recovering from its worst financial crisis in decades, and this deal helps manage its foreign reserves while maintaining trade with Iran.
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