Indian tea exporters have hit back at failures in efforts to make up for shortfalls in the supply of Sri Lankan tea to Iran following the economic crisis in the island nation.
The Vostro account, set up for the purpose of business, has now dried up after India was barred from sourcing oil from Iran amid US sanctions.
Iran is India’s largest tea market, followed by Russia and the US.
A Vostro account helps a foreign correspondent bank to act as an agent for a domestic bank. Four Iranian banks had opened a Vostro account with India’s UCO Bank to help India import oil and export rice and tea among other goods.
The payment problem in Iran’s market assumes significance as tea exports to Russia are also being affected by the ongoing Ukraine war.
Tea Board officials told Mint that the decline in Sri Lanka’s tea exports opened up almost the entire Iranian market where there is already strong demand for Indian orthodox tea. But exporters are worried about the payment.
The value of tea exports has fallen from $785 million in 2017-18 to $700 million in 2020-21, according to data available with the Commerce Department.
“Everyone has working capital problem. We cannot continue exports without payment or clarity from the government. Exporters in Russia, one of our biggest markets, have already suffered.
The US Office of Foreign Assets Control (OFAC) imposed sanctions on Iran over its nuclear program for the past several years, but it has started to hurt us since 2019, when product-specific sanctions were imposed that dried up the Vostro account. We have already lost Pakistan, a reliable tea importer, due to deteriorating bilateral relations.”
A commerce ministry official also said that ever since the product-specific restrictions were imposed by the US, the Vostro account has dried up and there is no money to pay Indian exporters.
“As long as there are restrictions, trade is not possible. But I suspect there are a lot of third party transactions going on. Many Iranian products can be shipped from Iraq to other countries. Traders from Dubai can also join in,” the ministry official said.
Sri Lanka is the world’s largest tea exporter Data collected by the Tea Board of India showed that in 2019, the island nation exported tea worth $75 million to Iran and $132 million to Russia. Indian exporters are also getting inquiries from other major export markets like Turkey, Iraq and China.
Sri Lanka has seen a sharp drop in tea production amid a 12-14 hour-long power cut in the debt-ridden country due to the economic crisis, which has announced a default on all of its $51 billion foreign debt.
Indian tea exporters are also looking for more opportunities in the US, Canada, Iraq, Germany and China, some of which are untapped markets that have tremendous potential.
Turkey may be a new market for Indian tea but high import duties are a deterrent.