To settle its $251 million debt to Iran, Sri Lanka will barter tea in monthly instalments of $5 million, because of United States sanctions on Iranian banking.

Head of Iran’s Trade Promotion Organization, Alireza Peyman-Pak and Sri Lanka Minister of Plantation, Ramesh Pathirana signed the barter agreement in Colombo on Tuesday.

Pathirana said that the deal makes it possible for the Ceylon Petroleum Corporation to settle its debts with the National Iranian Oil Company without violating US sanctions.

“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 black-listed Iranian banks will be involved in the equation,” read a statement by Sri Lanka’s plantation ministry.

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.

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

Iran is 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.