Sri Lanka is set to start bartering tea with Iran next month in lieu of $250 million owed for oil, a Sri Lankan official said on Friday.

In December 2021, the head of Iran’s Trade Promotion Organization, Alireza Peyman-Pak, signed an agreement with Sri Lankan Minister of Plantation, Ramesh Pathirana, according to which Colombo would barter tea in monthly instalments of $5 million to settle a $251 million debt to Iran because it cannot transfer money to Iran due to the US sanctions on Iranian banking.

"This is very timely for us because we get access to an important market and both Iran and Sri Lanka can trade without relying on dollars," Sri Lanka's Tea Board Chairman Niraj de Mel told Reuters.

"The agreement was to send $5 million worth of tea each month for 48 months but we plan to start with about $2 million per month."

According to the agreement, Sri Lanka’s Treasury will release equivalent of $5 million in rupees every month to the Sri Lanka Tea Board - a state-run industry regulator– that will then pay individual exporters in rupees at the central bank’s exchange rate.

“This scheme will not violate any UN or US sanctions since tea has been categorized as a food item on humanitarian grounds while none of the blacklisted Iranian banks will be involved in the equation,” read a statement by Sri Lanka’s plantation ministry.

Iran is among the top 10 importers of Ceylon Tea for the past several decades although purchases have declined following US sanctions.

Iran has been trying to increase barter deals amid sanctions. “We have the lower hand, and we have to make concessions, which means we have to accept any goods at any price”, Hamidreza Salehi, a member of Tehran’s Chamber of Commerce, has said.