Tea exports to Iran decline amid unrest

• Exporters cautious about exporting tea to Iran
• Local tea auction prices decline for varieties exported to Iran

While tea exports to Iran have declined amid the ongoing unrest in the country, local tea industry sources are optimistic that Sri Lanka’s tea-for-oil barter mechanism with Iran will remain unaffected by US sanctions and retaliatory tariffs.  

Speaking to The Sunday Morning Business, a senior market insider from the local tea industry revealed that exporters had become extremely cautious about exporting tea to Iran, with hardly any shipments made over the past week. 

He further noted that prices at the local tea auction had declined sharply for varieties typically exported to Iran, amid the ongoing unrest in Iran and concerns over the risk of potential US intervention.

“Prices at the tea auction have dipped with regard to those varieties that are normally purchased by Iran, because people don’t want to keep stocks,” he stated.

On Monday (12), US President Donald Trump announced through his social media accounts that any country engaging in business with Iran would be subject to a 25% tariff when trading with the US. 

This has raised concerns with regard to the fate of Sri Lanka’s Iranian tea-for-oil barter arrangement.

Commenting on the fate of the barter arrangement, the senior market insider stated that the situation remained unclear at present and that discussions had commenced to ascertain the status of the arrangement and its compliance with US sanctions. 

He added that there was optimism regarding a favourable outcome.

“From the information I have, the shipments of Sri Lanka’s tea exports to Iran are going to be cleared. Since we originally got approval from them, this doesn’t come under US sanctions. Possibly because this is a loan, they may not consider it as trade between the two countries,” he opined.

However, he further stated that notwithstanding the fate of the barter arrangement, demand for tea varieties exported to Iran had declined significantly due to the uncertainties involved, including whether ships could approach the country amidst the current volatile situation.

“Two weeks ago, the situation was very different. Tea exporters were still moving their products (to Iran) then, but now they are a bit cautious,” he said. 

However, he cautioned against undue alarm in the immediate term, noting that Iran accounted for only around 10 million kg from among Sri Lanka’s total tea exports of approximately 250 million kg.

Nevertheless, he admitted that in the longer term, the loss of this 10 million kg market would have a negative impact on the overall market.

The Iranian tea-for-oil barter mechanism essentially involves the Ceylon Petroleum Corporation (CPC) transferring in Sri Lankan Rupees the equivalent of $ 5 million to the Sri Lanka Tea Board (SLTB), which will then pay local tea exporters for exports of tea to Iran up to a value of $ 5 million. Congruently, Iranian tea importers will pay the National Iranian Oil Company in Iranian Rials.

Accordingly, the tea exported to Iran under this barter agreement will be used to pay off $ 240 million of the $ 251 million owed by the CPC to Iran for fuel imports.

The internal demand for tea in Iran amounts to 100,000 MT annually. Iranian tea producers yield approximately 25,000–30,000 MT per year, consequently necessitating the import of an additional 60,000–70,000 MT from different sources.

Source: The morning