Recent announcements from the United States regarding trade policies toward Iran have sparked widespread discussion in global markets. On January 12, 2026, President Donald Trump stated that any country conducting business with Iran would face a 25% tariff on its exports to the US, effective immediately. This measure aims to increase economic pressure on Iran amid ongoing internal challenges, extending beyond traditional sanctions to broadly target trading partners. Major economies like China, India, Turkey, and the UAE, key importers of Iranian oil and goods could see significant impacts on their US-bound shipments. While enforcement details remain fluid, with potential focus on high-volume traders, the policy introduces uncertainty for smaller exporters maintaining ties with Iran.
For Sri Lanka, a nation heavily reliant on tea as a flagship export contributing over USD 1.3 billion annually, this development warrants close attention. Iran has consistently ranked among the top ten buyers of Ceylon tea, with direct exports valued at approximately USD 62 million in 2024, according to international trade data. Historical peaks show even higher volumes, with Iran importing around 18-20 million kilograms in certain years, representing 6-7% of Sri Lanka’s total tea exports. This demand stems from Iranian preferences for strong, orthodox black teas, where Ceylon varieties excel in flavor and quality.
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Nature of Sri Lanka-Iran Tea Trade: Direct Mechanisms Amid Challenges
Sri Lanka’s tea trade with Iran operates primarily through a direct barter arrangement, exchanging tea for oil to navigate international payment restrictions. This mechanism, revived in recent years, allows shipments to continue without relying on US dollar transactions, which have been complicated by longstanding financial sanctions. Recent reports confirm ongoing exports under this tea-for-oil deal, with turmoil in Iran described as a “storm in a teacup” for exporters, indicating resilience in the supply chain. Trade databases record these as direct exports, underscoring a bilateral link rather than heavy reliance on third-party re-export hubs like the UAE for this specific route, though indirect channels supplement in some cases.
This direct exposure places Sri Lanka within the scope of the new US tariff threat. If enforced strictly, continuing business with Iran could trigger the 25% duty on all Sri Lankan goods entering the US market, including apparel (a multibillion-dollar sector) and other commodities. While tea exports to the US are minimal, the broader tariff would disproportionately affect higher-value categories, potentially costing far more than the revenue from Iran trade.
Potential Impacts: Scenarios for Tea Exports
The possibilities range from minimal disruption to significant short-term losses. In a best-case scenario, US authorities prioritize major oil importers like China and India, overlooking smaller non-strategic trades such as tea. Sri Lanka’s modest trade volume with Iran, focused on agricultural products rather than energy or prohibited items might escape intense scrutiny, allowing the barter system to persist with limited interference.
However, a stricter enforcement approach could compel Sri Lanka to scale back or halt direct exports to Iran to safeguard access to the lucrative US market. This would result in an immediate revenue dip for tea producers, particularly in mid- and low-grown elevations favored by Middle Eastern consumers. Auction prices might soften temporarily due to oversupply, affecting smallholders and regional economies in tea-growing districts. Exporters could face higher inventory costs and logistical adjustments, with potential knock-on effects on foreign exchange earnings at a time when Sri Lanka aims to stabilize post-crisis growth.
Longer-term, the policy could accelerate market diversification already underway. Iran’s share, while valuable, is not irreplaceable; other Middle Eastern nations like Iraq and Libya have shown growing appetite for Ceylon tea, alongside steady demand from Russia and emerging Asian markets.
Business Adaptation: Opportunities Amid Uncertainty
For Sri Lankan tea businesses, this juncture presents a catalyst for strategic pivoting rather than outright crisis. Prioritizing market diversification emerges as a core response, expanding into regions less vulnerable to geopolitical shifts. Europe and North America, though competitive, offer premiums for certified sustainable and organic varieties, where Sri Lanka’s rain forest alliance and ethical sourcing standards provide a competitive edge. Targeting health-focused consumers with antioxidant-rich pure teas or innovative blends incorporating spices and herbs could tap into wellness trends, commanding higher margins through branded packaging and e-commerce channels.
In Asia, deepening penetration in China and Japan, markets appreciating high-grown delicate flavors could offset losses, supported by free trade agreements and promotional campaigns. Africa and Latin America represent untapped potential for volume sales, where affordable bulk teas meet rising middle-class demand. Value addition remains key: shifting from commodity bulk to packeted, instant, or ready-to-drink formats enhances shelf life and appeal, reducing dependence on traditional buyers.
Exporters might also explore indirect routes more creatively, routing through neutral hubs compliant with international norms, though this adds costs and requires robust compliance checks. Investing in traceability technologies ensures transparency, appealing to discerning buyers and mitigating sanction risks. Collaborations with global platforms for direct-to-consumer sales bypass intermediaries, capturing higher profits while building brand loyalty.
On a policy level, industry associations could advocate for diplomatic engagements to clarify Sri Lanka’s position, emphasizing humanitarian aspects of food trade. Meanwhile, hedging through futures contracts or insurance against trade disruptions provides financial buffers.
In essence, while the US tariff threat introduces risks to Sri Lanka’s tea exports via the Iran channel, it predominantly highlights the merits of resilience through innovation. By leaning into niche strengths such as single-estate premiums, eco-friendly practices, and functional blends tailored for modern lifestyles, businesses can transform potential vulnerabilities into growth drivers. This adaptability not only safeguards revenue but positions Ceylon tea as a versatile global player, less susceptible to singular market fluctuations. As geopolitical landscapes evolve, proactive diversification and quality focus will define success in Sri Lanka’s tea sector.
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