📈 Iran Crisis: Trade Risks for Sri Lanka Export Sector

The intersection of internal unrest in Iran and external pressure has escalated into a systemic challenge with direct implications for Sri Lanka’s trade stability. US President Donald Trump’s latest declaration of a 25% tariff on any country trading with Iran poses a significant "double trade shock" to the island's recovery. • Critical Exposure & Risks • Tea Exports: Iran remains a top 10 buyer, importing ~9,800 MT monthly. However, auction prices for Ceylon tea (particularly Low Growns) fell steeply this week following the Iranian Rial’s collapse and new US tariff threats. • US Market Vulnerability: The US is Sri Lanka's largest export destination, generating ~US$ 3.00 Bn annually (25% of total exports). New tariffs could severely hit apparel & textiles and ICT/BPM competitiveness. • Barter Agreement: Shipments under the tea-for-oil deal continue but face disruptions. As of June 2025, Sri Lanka had reduced its oil debt to Iran to US$ 130.6 Mn (down from US$ 251 Mn) via this barter mechanism. • Sector Highlights • Tea: Monthly exports to Iran decreased by 17.52% YoY in late 2025; current unrest and payment documentation delays are causing exporters to hold back new orders. • Apparel: The sector faces increased costs if the 25% US "secondary tariff" is applied, potentially stifling the 8.15% growth seen in mid-2025. • Economic Outlook Based on provisional 2026 data, the Sri Lankan government is currently monitoring the situation to assess the full impact of US "maximum pressure" tactics on national export revenue and the fragile debt-settlement framework.