Sri Lanka settles US$20 million Iranian oil debt with tea

“So far, US$20 million worth of tea has been exported to Iran under the barter trade agreement,” Sri Lankan Prime Minister Dinesh Gunawardena’s office said in a statement after talks with Iranian Foreign Minister Hossein Amir-Abdollahian.

The tea-for-oil deal was agreed upon in December 2021, but exports were delayed by Colombo’s economic crisis that forced then-president Gotabaya Rajapaksa to step down in July 2022.

The barter deal allows sanctions-hit Iran to avoid having to use up scarce hard currency to pay for imports of popular tea.

It also allowed Sri Lanka to pay with tea, as the country was short of foreign currency.

Ceylon tea, known by the island’s colonial-era name, made up nearly half of Iran’s consumption in 2016. However, the proportion has declined in recent years.

The barter deal comes as Sri Lanka sent a new restructuring proposal to dollar bondholders through its adviser Lazard as the South Asian nation seeks to complete overhauling its defaulted debt, according to people familiar with the matter.

A counter proposal to a bondholder group’s offer in October for a 20 per cent haircut and the issuance of macro-linked bonds was conveyed through Lazard, the people said, declining to be named because negotiations are private. They did not elaborate on the details of the offer.

Government representatives may travel to London soon to meet Sri Lanka’s commercial creditors, one of the people said.

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Completing the overhaul of Sri Lanka’s US$27 billion of foreign debt is critical to ensure financing from the IMF bailout keeps flowing. President Ranil Wickremesinghe said this month that authorities expect to complete the restructuring