The conflict in Iran has led to serious industry concerns and uncertainty regarding the plight of Sri Lanka’s tea sector.
While disruptions to trade routes and air travel have already impacted several segments of the economy, Sri Lanka’s tea industry has become particularly vulnerable due to the significant volumes exported through the affected trade routes and to the impacted regions.
Industry stakeholders have expressed concern, warning that the sector could face major repercussions if the conflict becomes protracted.
Impact on auction prices
Speaking to The Sunday Morning Business, Sri Lanka Tea Board (SLTB) Chairman Rajpal Obeyesekere explained the present situation, stating that, with regard to Iran, Sri Lanka was required to export tea to the value of approximately $ 250 million under the tea-for-oil programme. He noted that exports had already reached around $ 242 million, leaving only a marginal balance to be exported under the programme.
He noted that thereafter, a new mechanism would need to be implemented for Sri Lanka to continue exporting tea to Iran.
Commenting on other markets in the region, Obeyesekere observed that Sri Lanka was largely exposed to that particular region. He stated that based on the latest information received, most shipping services to these destinations had been suspended, with only cargo operations continuing. As a result, shipments now have to be routed through alternative channels, leading to shipping lines quoting higher freight rates.
“These shipping lines are currently under serious pressure due to disruptions to the Strait of Hormuz specifically and the reluctance to operate along affected corridors, resulting in the need for alternative routing. This will affect the tea industry overall unless the situation reaches some form of settlement. The current scenario is unfavourable,” he said.
He also stated that at last week’s auction, prices for teas typically consigned to this region had fallen by about Rs. 100 per kg. Meanwhile, the average unsold quantity at auction increased by approximately 8–10%.
While noting that the Government was exploring possible options, Obeyesekere pointed out that the issue was not limited to Sri Lanka, as all countries exporting to the affected region were experiencing similar challenges.
On the potential revenue impact, he said that a major portion of Sri Lanka’s tea exports was directed to that region. If the situation persists, it could undoubtedly impact revenue.
However, Obeyesekere observed that during previous conflicts, the industry and importers had found alternative routes and channels to move goods into affected countries. He cited similar situations during conflicts in Iraq and Libya, where trade continued through other means.
Nevertheless, he said that revenue would be impacted unless the situation improved. He further noted that it was difficult to determine the exact extent at this stage, adding that the situation would need to be monitored over the next 7–10 days before any necessary adjustments could be made.
Logistics and supply chain issues
Moreover, former Chairman of the SLTB and industry veteran Niraj de Mel stated that on paper, the industry would inevitably be affected due to disruptions to logistics, especially given the importance of the Middle Eastern market.
Iran remains one of Sri Lanka’s key tea markets. He noted that the tea-for-oil barter arrangement between the two countries, which was established to settle Sri Lanka’s outstanding dues for fuel imports, had already settled a significant portion of the dues.
He explained that this balance could have supported approximately another 17–19 months of tea exports under the barter arrangement, especially for the types of tea typically purchased by Iran.
De Mel also observed that shipping agents and importing companies in the region had reportedly advised exporters to delay shipments. He explained that such delays would have a direct impact, as teas currently stored in warehouses would not be cleared or shipped out as planned.
As a result, he said that there would likely be a build-up of tea stocks both in exporters’ warehouses and within the pipeline of teas scheduled for upcoming auctions.
“The situation could cause a logistic problem across the board, especially in terms of warehousing capacity. In such instances the first step is curtailing expenses, and the tea prices will receive the brunt of this. Demand could drop as exporters and traders operate more cautiously,” he said.
Commenting on market conditions, de Mel noted that demand from the Middle East tended to slow during the fasting period. However, he added that the first auction held after the recent developments showed that the market had not reacted as negatively as initially expected. While there was a slight decline in prices, demand remained.
“There is possibly an expectation that the war will end soon. The coming days will provide a clearer picture as to whether the current demand level is a temporary response or a more stable trend. Producers are also acting cautiously, choosing to sell teas more quickly rather than holding, hoping for higher prices in the future,” he said.
He observed that securing immediate cash flow was a sensible approach under the current circumstances.
De Mel further noted that disruptions to maritime routes could affect shipments not only to the Middle East but also to Russia and other destinations that relied on the same route. While alternative routes are possible, he explained that they would add significant freight costs, which could ultimately put pressure on tea prices.
Despite the challenges, he noted that Sri Lanka also exported tea to markets in the East, including Japan and Australia. However, he added that these markets were significantly smaller in volume compared to the Middle East and Russia, which together accounted for a substantial share of Sri Lanka’s tea exports.
“If this situation continues, the revenue loss will certainly be substantial. Sri Lanka earns around $ 120–140 million per month from tea exports. The Middle East accounts for roughly 50–55% of the country’s tea exports, while Russia contributes an additional 8–9%, and Turkey also adds a lot. Combined, these markets account for nearly 64% of Sri Lanka’s tea export revenue,” he said.
He added that increasing freight costs, higher energy prices, and increased costs for imported packaging materials such as teabags and filter papers could further increase production costs.
Overall, de Mel stated that the situation remained uncertain and would depend largely on how the conflict developed.
Industry stakeholder, Imperial Teas Group Chairman and Managing Director Jayantha Karunaratne also shared similar concerns, noting that given the large volume of tea sent to the Middle East, disruptions would definitely impact exports and auction prices. He also highlighted rising freight and shipping charges to other regions, as well as hikes in insurance premiums.
He added that all these extra charges would add significantly to the cost that exporters must bear. “While we are yet to learn the full extent of the issue, we must keep monitoring developments on a daily basis. However, there will be a major impact,” he said.
Temporary impact on overall tea exports
Speaking to The Sunday Morning, the Tea Exporters Association (TEA) stated that with about 50% of Sri Lanka’s tea exports going to Middle Eastern countries, Iraq, Iran, Libya, Saudi Arabia, the UAE, Syria, Turkey, Jordan, etc. were the leading buyers of Ceylon Tea in the region.
Accordingly, it was noted that the current situation in the region would temporarily affect overall tea exports, since many sea ports had suspended operations.
Further, the TEA stated that most of the major shipping lines such as the Mediterranean Shipping Company (MSC), Maersk, CGM, and Ocean Network Express (ONE) had also temporarily suspended their services to the region. It was also pointed out that all shipping lines planned to introduce war risk charges, from around $ 1,500–2,000 for 20 Twenty-foot Equivalent Units (TEUs), to $ 3,000–4,000 for 40 TEUs.
The TEA said that in view of the disruptions and high costs of freight and insurance, both foreign buyers and exporters may adopt a wait and see approach at the moment.
On the impact on revenue so far and the anticipated cost, the TEA noted that Sri Lanka had earned $ 1,507.2 million ($ 1.5 billion) from tea exports last year compared to $ 1,435.9 million ($ 1.4 billion) in 2024. In January this year, the country earned $ 121.8 million compared to $ 112.7 million in January 2025 (a 5% increase).
“The figures for February are not available yet, but they should be either similar to last year or higher, as Middle Eastern issues did not affect tea exports last month. The disruption to tea exports in March will certainly affect the volume and value of exports, but the amounts cannot be estimated at this moment. The extent of the cost of the war will depend on how long this will continue.”
According to available data, over 90% of the $ 251 million debt to Iran has been repaid by Sri Lanka through tea exports under the tea-for-oil barter mechanism, which was arranged by the Governments of both countries.
Furthermore, the TEA raised concerns that the Trade Promotion Organization of Iran, responsible for handling the allocation of tea quotas and funds among Iranian buyers, may not be able to undertake these activities under the prevailing situation in the country.
“The National Iranian Oil Company must confirm receipt of payment from the Iranian buyers (in rial) to enable the Ceylon Petroleum Corporation (CPC) to release the payment (in rupees) to local tea exporters through the SLTB. This process may also be delayed given the current situation in Iran and that will eventually delay the release of payment by the CPC, thus affecting the cash flow position of local exporters. We can expect a temporary standstill on the project until the situation in Iran normalises.
“The Iran war had some impact on this week’s tea auction on 3 and 4 March. Although exporters were generally buying tea, the prices of certain types sought by Iran dropped significantly. Most buyers have orders in hand and need tea to fulfil them. They will buy the tea and hold it for shipping once the situation returns to normal or until major shipping lines resume operations.”
Severe blow if conflict continues
Former Chairman of the Colombo Tea Traders’ Association (CTTA) Sanjaya Herath stated that the situation, if continued, would likely be a severe blow to Sri Lanka’s tea exports, especially to markets in the Middle East and Iran.
He noted that freight rates had already increased, explaining that this was being introduced as a war-related surcharge. In addition, he said that bunkering charges were also expected to increase as global oil prices rose.
Herath further noted that shipping movements were becoming uncertain, with some vessels permitted to travel while others were not. Considering the overall situation, he said that it was difficult to determine how long the disruption would last, adding that it would undoubtedly have a significant economic impact.
He observed that shipments were currently at different stages, with some already at sea, some at transit ports, and others still in Sri Lanka. Since payments are usually made only once cargo reaches the destination port, he said that the uncertainty surrounding shipments could also have economic consequences for exporters.
Commenting on market conditions, Herath noted that demand from the Middle East was usually slower during the summer season. However, he said that even at the beginning of last week, the tea market had already shown a marginal decline of around Rs. 50. He explained that many participants in the market were currently operating on buying orders, while trading companies were reluctant to take positions due to the uncertainty surrounding the situation.
“The conflict only began towards the end of the previous week and it is still too early to fully assess the impact. We can learn more as time goes on. The industry will need to adopt a wait and see approach until developments become clearer,” he said.
Commenting on the importance of the region, he said that the Middle East remained one of the most important markets for Sri Lankan tea. He noted that key markets included Iran, Russia, and Turkey, and thus the Middle Eastern market played a key role in sustaining the industry.