Sri Lanka and Iran have signed a barter agreement under which Colombo will pay off its oil debt to Iran with the famed Ceylon tea. The island nation's debt for oil stands at $251 million.

An MoU was signed last week between Sri Lanka's Ministry of Plantation and Iran's Ministry of Industries, Mine, and Tradeto clear part of the outstanding payments from the Ceylon Petroleum Corporation to the National Iranian Oil Company, reports website News Lanka.

The unusual trade agreement also helps Sri Lanka to push up the sales of Ceylon Tea to Iran. The MoU was signed by Sri Lankan Plantations Minister, Ramesh Pathirana, and Iranian Deputy Minister Alireza Peyman-Pak.

Pathirana said that Sri Lanka will begin sending tea to Iran as soon as January 2022.  "We hope to send $5 million worth of tea each month to repay Iran for oil purchases pending since the last four years," he said.

The Sri Lankan minister also said that the deal will not violate US-led sanctions on Iran because tea falls under food items which are exempt. He added that Iranian banks that are blacklisted will not be involved in the trade agreement.

For Sri Lanka, the deal with Iran comes as a relief because of its critical foreign exchange situation. Last week, the country's media had reported that the island nation is left with only one month's of forex.

Colombo is also in talks with India to overcome its foreign exchange issues. Finance Minister Basil Rajapaksa visited India to seek financial support.

The government is utilising the dwindling foreign exchange only for emergency imports like medicines and food. In November, it had to shut down its only refinery for a few days as the country was not left with enough crude to process.