Tea shop in Teheran
Iran and Sri Lanka revived an agreement to barter tea to retire $250 million in oil debts dating to 2012. The agreement effectively bypasses Western sanctions and will ease financial hardships in both countries caused by politics, economics, and war.
Terms call for the state-run Ceylon Petroleum Corp. to transfer the equivalent of $5 million monthly (about 1.5 billion rupees) to the Sri Lanka Tea Board. The funds will then be paid to tea exporters. According to Tea Board chairman Niraj de Mel, Iranian tea importers will pay the National Iranian Oil Company in riyals.
Sri Lanka’s plantation ministry issued a statement assuring all parties that the agreement “will not violate UN or U.S. sanctions since tea is categorized as a food item on humanitarian grounds. None of the blacklisted Iranian banks will be involved in the equation.”
De Mel explained via email that barter is a mechanism by which Sri Lanka will make good on its debt. The more pressing concern is production. “This year to date, Sri Lanka has fared poorly in supplying Iran, largely due to the sharp rise in prices for Ceylon tea and, therefore, to the benefit of India. There is at least a good $2 to $3 difference in price between us,” he wrote.
In past years, Iran spent as much as $125 million buying Sri Lankan black tea, an expenditure that declined to $70 million in 2022. Iran's domestic demand for tea stands at 100,000 metric tons per year. Growers in Iran produce some 25,000 to 30,000 metric tons each year, so a volume of 60,000 to 70,000 metric tons of tea need to be imported from various origins.
Trade resumed in July as Sri Lanka exporters shipped an estimated $2 million worth of tea to offset $251 million owed Iran, according to the publication Iran International. Terms call for 48 monthly installments.
Sri Lanka imported $541 million worth of crude oil from Iran in 2012, about 1.2% of Iran's $46.7 worth of oil exports. U.S. sanctions on Iran have curtailed trade with Europe, Japan, South Korea, and India. Today Iran is a net importer of crude oil, shipping only $129 million in 2021 and importing $260 million.
In March 2023, a U.S. State Department press release said that the U.S. “is committed to significantly reducing Iranian energy exports and will sanction those facilitating Iran’s petroleum and petrochemical trade.” The U.S. named 39 entities that comprise a “shadow banking” network across multiple jurisdictions. The European Union separately sanctions Iran for providing military hardware to Russia that has been used in the invasion of Ukraine.
In a related development regarding India's recently stymied exports of tea to Iran, Mohit Agarwal, director of Kolkata-based Asian Tea Group, on his return from Tehran in June, told STiR that tea buyers in Iran “are optimistic that the payment and registration issues will get resolved soon. We are hopeful that the Indian government will take cognizance of the situation and help boost Indian tea exports to Iran.”
In November 2022, Iran stopped issuing a Register Proforma on invoices from Indian suppliers of tea and rice. The Proforma document is mandatory to land goods at Iranian ports.
In an email, Anshuman Kanoria, chair of the India Tea Exporters Association, said that he expects trade to resume.
Kanoria wrote that “Iranian importers have clearly resumed purchases, and a full resumption of registration of contracts for the import of Indian tea by Iran seems imminent. Sri Lanka will find a way to retain space in the Iranian market via this barter agreement. We believe that the Indian Government’s push to increase trade in the Indian rupee will give us the edge in the near future. Rest assured, India will remain Iran’s favorite cuppa, and they will continue to import lots of it.”
India's tea export volume may fall as much as 10% in 2023, according to the Tea Board of India. Demand is soft overall, with Turkey, Russia, Iraq, China, and Pakistan opting for lower quantities and less expensive teas. In the past,
Iran annually purchased 30 to 35 million kilograms of mainly orthodox processed Indian tea, about 40% of India’s most expensive tea exports. In 2022, for the 10 months through October, exports declined by 9% to 19.5 million kg compared to 21.5 million kg during the same period in 2021. This spring (January–March 2023), total tea exports were down 6% to 48 million kg. India’s tea exports totaled 228 million kg in 2022–23, an increase of 18% compared to 2021, according to the Tea Board of India.