Informist, Friday, Mar 10, 2023
By Avishek Rakshit
KOLKATA – Indian tea continues to make its way to Iran despite the country halting tea imports from India in November, a move that could have severely impacted India's global tea trade.
According to multiple sources, tea exporters in the country are now using the UAE, primarily Dubai, as a bypass route to ship tea to Iran. While Iran stopped signing new contracts to import tea from India, there is huge demand for Indian tea in the West Asian nation, said Sujit Patra, secretary of the Indian Tea Association.
While the reasons why Iran stopped purchasing tea directly from India remain unknown, industry officials say shipping through the bypass route will continue till the two countries resolve their trade differences and the settlement bank issue. The trade dispute, they say, stems from India's refusal to buy kiwis and apples from Iran, and the latter's rejection of Indian tea, citing the presence of chemicals beyond permissible limits.
The settlement bank issue pertains to a rupee-rial agreement through which Indian oil refiners paid local Iranian banks in rupees for oil purchases, and the funds were then used by Iran to pay for Indian imports such as tea. This did away with the use of dollars, the default currency for global trade.
"However, the settlement banks, which were doing these transactions, have run out of rial in India and rupees in Iran, which is creating much of a problem... unless these currencies are refilled, there is little hope of reviving direct trade again to export levels of 50 mln kg (of tea a year)," an exporter shipping to Iran said.
Some officials say India's growing dependence on Russian oil, as opposed to oil from Iran, could be another reason for the bar on tea imports from India. Iran was India's second-largest oil supplier till 2019, when US sanctions led the Indo-Iran oil trade to plunge sharply – from $17 bln in 2018-19 (Apr-Mar) to less than $2 bln in Apr-Jan.
BYPASS ROUTE
Tea exporters first started using the UAE as a bypass route in 2018 to circumvent US sanctions on Iran after the country refused to halt its nuclear programme. Tea exporters could show a non-Iranian port as the consignment's destination and receive payment from a non-Iranian entity without irking the US and its allies.
Now, when Iran has halted tea imports from India, domestic tea companies and exporters are using this route to not just avoid irking the US, but also evade Iran's watchful eye on buying tea directly from India.
Under this mechanism, an Iranian tea buyer first enters into a purchase agreement with an Indian tea plantation company or exporter, and then registers a trading company in the UAE. The Indian exporter ships the consignment in the name of the Iranian buyer, which is shipped to a port in the UAE and received by the trading company. After a hiatus of around 10 days, the consignment is sold and shipped to Iran from the UAE by the trading company. The payment to the Indian seller is done by the trading company on behalf of the Iranian buyer.
"Iran presently has a problem with tea billed from India, but not with tea originating from India," said an exporter shipping tea to the UAE for an Iranian buyer. "The consignment of Indian tea is getting received by a UAE entity which is then selling to an Iranian buyer... so factually, Iran is not buying tea from India," the exporter said.
Besides the UAE, there are other minor bypass routes as well, including Saudi Arabia and Turkey, officials said.
BIG CHANGE
Till recently, Iran was the second-largest buyer of Indian tea, after Russia; in 2019, it even surpassed Russia to become the largest buyer. During 2016-21, India's tea exports to Iran accounted for 12-16% of the country's total shipments. In comparison, shipments to the UAE accounted for only 8-9%.
Things, however, changed last year when Iran accounted for only 10.5% of the shipments from India during Jan-Oct, while the UAE's share jumped to nearly 18%. "The demand for tea is not so much in the UAE. Many blenders and packeteers who retail tea use the UAE as a shipping destination... thus increasing shipments to the UAE. This does not reflect an increase in demand there but rather other countries (which are) using the UAE as a front to procure tea," said a major tea exporter from Kolkata who ships to the UAE, the UK, and the US.
Interestingly, shipments to the UAE had seen a sharp jump in 2021 as well, after tea exports to Pakistan and Iran were disrupted due to deteriorating relations with the former and bank settlement issues with the latter. In 2021, shipments to the UAE jumped nearly 31% on year to 17.1 mln kg, while those to Iran fell 27.1% to 26.2 mln kg.
The big leap in exports to the UAE was in Nov-Dec, after Iran halted tea imports from India. Direct bulk tea exports to Iran fell marginally on year to 2.3 mln kg in Nov-Dec, resulting in a 15.7% drop in export income from Iran to $6.1 mln. On the other hand, export volumes to the UAE surged nearly 177% to 7.2 mln kg, causing the forex inflow from the UAE to jump threefold to $24.3 mln, data from the Ministry of Commerce and Industry showed.
Direct tea shipments to Iran are expected to continue for only a few more weeks, owing to contracts dated before November, which have to be legally honoured. End
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