Sri Lanka has announced that it will continue to repay part of its debt to Iran for crude oil imports through the export of tea. Neeraj De Mel, Chairman of the Sri Lanka Tea Board, disclosed that the reimbursement amount to Iran stands at $55 million. This payment is part of Sri Lanka’s total $251 million debt for oil imports from Iran. In March of the previous year, $20 million of this debt was settled through tea exports.
Creative Debt Settlement
The Sri Lankan Ministry of Agriculture highlighted that this exchange is in line with a memorandum of understanding between the governments of Sri Lanka and Iran. According to the ministry, this agreement has enabled Sri Lanka to settle its debt to Iran in a ‘creative’ manner. The statement from the ministry also noted several challenges faced by the Sri Lankan economy, including European Union sanctions, the COVID-19 pandemic, and a sharp decline in tourist arrivals following the Easter 2019 terrorist attacks, which resulted in 200 fatalities. These factors have severely impacted Sri Lanka’s dollar reserves, complicating the repayment of its debt to Iran.
To date, Sri Lanka has repaid approximately $60 million of the debt. De Mel also announced a significant increase in Sri Lanka’s tea exports to Iran, as per an agreement with the Islamic Republic. In the first five months of 2024, nearly five million kilograms of tea were exported to Iran, compared to only 1.85 million kilograms during the same period last year.
Strengthening Commercial Relations
The memorandum has not only facilitated the repayment of Sri Lanka’s debt to Iran but has also strengthened commercial relations between the two countries. An agreement to exchange tea for oil was initially signed in December 2021. However, the export of tea to Iran was delayed due to Sri Lanka’s economic crisis. This crisis led to the resignation of Gotabaya Rajapaksa, the then-president of Sri Lanka, in July 2022.
Both Sri Lanka and Iran are dealing with economic challenges. Sri Lanka is facing a shortage of foreign exchange, while Iran, under severe economic sanctions, is attempting to use its foreign exchange earnings for various purposes by exchanging goods for oil.
Controversy Over Oil Discounts
Despite the benefits of this exchange, there is controversy surrounding the discounts offered on Iranian oil. Reports from Iranian media suggest that the regime may be offering oil at prices significantly lower than the official rate. The exact amount of the discount remains unclear, with officials providing varying estimates.
The Union of Exporters of Oil, Gas, and Petrochemical Products of Iran has commented on the issue, stating that the Ministry of Oil claims the discount is insignificant. However, Hedayatollah Khademi, a member of the Energy Commission of the 10th Parliament, remarked that without substantial discounts, buyers would not risk purchasing oil from a sanctioned country. The Minister of Oil has mentioned that the discount is less than the number of fingers on one hand, but experts and senior officials continue to emphasize that Iran offers special discounts on its oil exports.
Khademi added that the exact amount of the discount is known only to those directly involved in the transactions. Estimates range from 20% to 30%, but the precise figure remains undisclosed. Nonetheless, it is widely acknowledged that Iranian oil is exported at a discount.
