- Suspension initiated prior to conflict
- $ 244 m worth of tea already delivered
- Intended to reconcile goods in transit
Sri Lanka’s tea-for-oil barter mechanism with Iran has been suspended in order to avoid exceeding the $ 250 million payment pledge by the Ceylon Petroleum Corporation (CPC), the Sri Lanka Tea Board (SLTB) reveals.
The suspension has taken effect prior to the outbreak of the current Middle East conflict.
Speaking to The Sunday Morning Business, SLTB Chairman Rajpal Obeyesekere stated that the Iranian tea-for-oil barter mechanism had been suspended, with no new shipments being made under it at present.
He clarified that the suspension was not a consequence of the conflict, noting that it predated the recent escalation in the Middle East.
Obeyesekere explained that the suspension had been implemented after it was determined that the amount undertaken to be repaid by the CPC under the mechanism was close to being fulfilled.
He noted that based on available figures, approximately $ 244 million worth of tea had already been shipped to Iran, against a total target of around $ 250.3 million.
“The tea-for-oil mechanism was introduced for the repayment of around $ 250.3 million. About one-and-a-half months prior to the current crisis, we compiled the figures and identified that nearly $ 244 million worth of tea had already been shipped to Iran.
“As we were nearing the target, we decided to pause further shipments until a full reconciliation is completed, especially since several consignments are already in transit,” he stated.
The SLTB Chairman further explained that the suspension would remain in place until the value of shipments in transit at present was fully reconciled. This is in order to avoid exceeding the agreed repayment threshold, which could create complications regarding payments to exporters, as the CPC would not settle amounts beyond the agreed limit.
Accordingly, he emphasised that the decision to suspend the programme was taken independently of the current geopolitical developments and was based purely on operational and financial considerations.
The Iranian tea-for-oil barter mechanism involves the CPC transferring the Sri Lankan Rupee equivalent of approximately $ 5 million to the SLTB, which, in turn, pays local tea exporters for shipments to Iran. Correspondingly, Iranian importers settle payments with the National Iranian Oil Company (NIOC) in Iranian Rials.
Accordingly, the tea exported to Iran under this barter agreement was to be used to pay off the $ 250 million owed by the CPC to Iran for fuel imports.
Iran’s domestic demand for tea is estimated at around 100,000 MT annually. However, local production ranges between 25,000 MT and 30,000 MT, necessitating imports of approximately 60,000–70,000 MT from international suppliers, including Sri Lanka.