U.S. sanctions imposed on Iran are causing a sharp downturn in the tea trade. Renewing sanctions in recent weeks, and threatening the central banks of U.S. allies, has caused Iran’s currency to nosedive, unemployment to increase, and inflated prices for tea and sugar.
Iran produces only a fraction of the 120 million kilos of tea it consumes annually, making it dependent on imports that are traded in U.S. dollars. Iran was the world’s fifth largest tea importer in 2017, behind 4th ranked U.K. The country imported 3.9 percent of the world total at a cost of $283.8 million according to World’s Top Exports. The U.S. ranks third, purchasing 6.7 percent of the word’s total and paying $486.80 million in 2017.
Impeding financial transactions crippled the nation’s tea trade in 2012. The new round of sanctions imposed this month includes a U.S. threat that may lead to financial restrictions on other countries that continue to trade with Tehran. This makes Iran’s largest tea trading partners in India, Sri Lanka, and Kenya vulnerable. Last year India supplied Iran with 29 million kilograms of tea worth about $30 million. Sri Lanka exported 27 million kilograms and Kenya supplied 20 million kilograms. An unknown amount, estimated at several million kilograms, was smuggled into the country.
Tea exports are not banned, the U.S. simply intends to prevent financial circumventions from occurring. It is unlikely to go so far as a blockade.
To circumvent sanctions in 2012 India established a rupee-based trade in which the UCO Bank of India arranged for Indian companies to receive payments for tea exports exchanged for Iranian oil.
A high-level delegation of Indian government and trade executives is scheduled to visit India the third week of October to explore a similar work-around. The hope is that tea will be included on a “priority list” of traded items that includes pharmaceuticals, rice, and other essential commodities, according to Azam Monem, chairman of the India Tea Association. He told the Economic Times, “We have sought a special exchange rate for tea whereby the Iranian buyer can buy tea paying lesser rials.”
Sri Lanka is considering paying its oil debt with tea. Tea officials there said shipments of tea could offset what is owed for Iranian oil. The Iranians quickly dismissed the idea in the Tamil Guardian, noting that Sri Lanka owes $250 million for oil, “900 times as much as Iran’s entire tea import bill.” A spokesman for the Iran tea organization Goudarz Khordadpour, said that tea imports would not exceed 55,000 metric tons, worth approximately $275,000.
Last week the East African Tea Traders Association (EATTA) called for government intervention to sustain exports to Iran.
“Most banks will now be shy to transact money coming in from Iran and this will impact negatively on trade. We want the Central Bank of Kenya (CBK) to come up with modalities that will ease payment so that we do not lose out on this market,” EATTA managing director Edward Mudibo told the Nation.
In the six months ending June 2018 Kenya sold $5.7 million (Sh575 million) worth of tea to Iran. Local banks continued to service accounts, but Iranian buyers will find it increasingly difficult to secure dollars. They are currently $1.2 million in arrears, according to a report in The Nation. Annually Kenya sends Iran about 20 million kilograms, a number that could greatly decline as sanctions take full effect in November.