Sri Lanka to pay Iran oil debt in tea as trade partners look for creative ways to avoid Trump sanctions

Sri Lanka is drawing up proposals to get around international sanctions on Iran by paying its oil debt with the Middle East country in tea, according to a report.

Ceylon Petroleum Corporation (CPC), the national oil and gas company of Sri Lanka, owes Iran $250m (£190m) for oil purchases made recent months.

But new regulations designed to make Sri Lanka compliant with UN Security Council sanctions on Iran mean a straight financial transaction with Iranian government bodies could fall foul of the rules.

At the same time, Iran is the fourth-largest market for Sri Lankan tea, a commodity that is not prohibited by the terms of any UN Security Council sanctions.

Speaking to the country’s Sunday Times newspaper, Lucille Wijewardena, the chair of the Sri Lanka Tea Board, said the amount owed by CPC was the equivalent of a year’s tea exports going the other way.

“If the CPC pays us, we can continue the export of tea to Iran as there is no ban on this commodity. The amount the CPC owes Iran can offset payment for a year of tea export to Iran,” he said.

Wijewardena said more talks would be held in the coming weeks to allow Sri Lanka to continue to trade with Iran in spite of UN sanctions. Sri Lanka exported 27,419 metric tonnes of tea to Iran in 2017.

Sri Lanka is not the only international partner reconsidering how it does trade with Iran, as the US prepares to impose tough new sanctions on Tehran at what Donald Trump has called “the highest level”.

Mr Trump announced two months ago that he would withdraw the US from the international agreement designed to ease sanctions on Iran, in exchange for restrictions on the country’s nuclear programmes.

The new US sanctions will begin in August with a ban on all dollar trade with Iran, and will then seek to punish US trading partners who invest in Iranian oil infrastructure or purchase crude from the country.

Indian rice exporters say they have already started to feel the pinch from the impending sanctions, as companies are forced to find new banking arrangements with European or Middle Eastern brokers, avoiding the dollar ban.

Iran is a big market for Indian basmati rice. At present, shipments for old contracts are going to Iran. But there is a delay in new contracts. So the trade is worried about Iran market,” Gumnam Arora, joint managing director of Kohinoor Foods, told the Economic Times.

Fear of angering the US has not stopped countries like India from engaging in high-level trade talks with Iran in the past month, as they seek to find sanctions workarounds.

For others, there is a sense of frustration with the sweeping nature of Mr Trump’s actions. Navin Dissanayake, Sri Lankan plantation industries minister, told the Daily FT: “Iran is buying a lot of our tea and we have a bilateral agreement with them. Just because the Americans put sanctions on them, it doesn't mean that they have to impose a sanction on us.”