Sri Lanka will pay down its oil debt held by Iran with tea in response to new regulations that Sri Lanka has issued in order to comply with a UN Security Council Resolution.
The UN resolution calls for the imposition of sanctions on Iran for failing to stop its uranium enrichment program, and restricts financial transactions with Iran. In response to these restrictions, Sri Lanka is hoping to pay Iran in tea-a year's worth of it.
Sri Lanka's Ceylon Petroleum Corporation (CPC), Sri Lanka's state-owned oil and gas company, owes Iran about $250 million for oil shipments in recent months. But restrictions on payments limits CPC's options on how to pay for the oil. The Sri Lanka Tea Board proposed a solution: compensate Iran with tea instead of dollars.
The proposal would have the CPC pay for the tea, then the tea would be shipped to Iran.
"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," Tea Board Chairman Lucille Wijewardena said, adding that there would be more discussions on the subject in the coming week. Related: IEA: World Is Not Spending Enough On Energy
Sri Lanka has long relied on Iran's participation in various energy projects, including upgrading oil refineries, as well as chipping in on hydroelectric projects and rural electrification projects.
Iran agreed in May to build a new refinery for Sri Lanka, on top of upgrading an existing state-run oil refinery that Iran had built for Sri Lanka in 1969-a refinery built specifically to refine Iranian light crude. But in the wake of the first round of US sanctions on Iran, Sri Lanka was forced to look for other suppliers.
Iran is the fourth largest market for Sri Lankan Ceylon tea, accounting for 9.5% of its total exports.
While payments in tea may be a technically acceptable method of skirting UN sanctions, the $250 million that's owed is for a couple of months' worth of oil, whereas it would take a year's worth of tea to compensate. It is unclear how future oil shipments to Sri Lanka will be paid for.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More