Oil diplomacy with Iran during my tenure in Tehran

by Omar Kamil

Sri Lanka and the Islamic Republic of Iran have enjoyed a cordial and friendly relationship for many decades. Historians have recorded Persian traders doing business in Colombo on their “Silk Route” to China. Persian coins are exhibited at the UNESCO World Heritage Cultural Center in Sigiriya.

As Sri Lanka has been Importing light sweet crude oil from Iran for the Sapugaskanda Refinery for over 25 years, during my tenure as Ambassador of Sri Lanka to Iran in January 2003, Hon. Karu Jayasuriya, Minister of Power and Energy, together with Chairman Ceylon Petroleum Corporation (CPC), Mr. Daham Wimalasena requested me to obtain concessionary terms from the National Iran Oil Company (NIOC) for crude oil imports as well as diesel furnace oil for electricity generation. They were aware I was familiar with the language of commerce and trade.

Although CPC which had imported 75% of it’s crude oil requirement from Iran for the previous 25 years on a Government to Government basis, it yet had to provide a prime bank guarantee of an international bank for Letters of Credit established through the People’s Bank. This cost the CPC of over Rs. 100 million annually by way of commissions. Due to the U.S. military action in Iraq in March 2003, global oil prices steadily rose from USD 20 to 100 per barrel adding further burdens on oil importers like Sri Lanka.

Minister Karu Jayasuriya and Chairman Wimalasena were very keen on obtaining a dispensation on the prime bank guarantee requirement. In this regard, I met the Deputy Minister of Foreign Affairs responsible for Economic Affairs who overlooks the NIOC and made a fervent appeal to reconsider the requirement of the bank guarantee as our Letters of Credit had never been dishonoured over the previous 25 years.

The minister was extremely receptive and said he would make the recommendation to the Governor, Central Bank of Iran. He requested me to follow up this matter with the Governor. I called on the Governor, Dr. Shabbani, and requested reconsideration of the bank guarantee requirement. He told me that although an International Bank Guarantee is a pre-requisite for Iranian oil imports by all nations in the SAARC region including India, he would make a special concession on an exceptional basis, considering the relationship Sri Lanka has had with NIOC over a quarter century.

The Governor of the Central Bank of Iran by his letter of December 9, 2003 informed our Central Bank Governor A.S. Jayawardana of the waiver of the Prime Bank Guarantee. Governor Jayawardena and CPC Chairman Daham Wimalasena by their letters dated January 26, 2004 and January 23, 2004 respectively, expressed their appreciations for the efforts made in successfully negotiating this matter with the Central Bank of Iran resulting in considerable savings for the CPC and the country.

In regard to our request for crude and diesel furnace oil on deferred terms, I called on Deputy Minister of Oil Mr. Hussain Najad, who earlier served as the Ambassador of Iran in the United Nations in 1991. The minister recalled the stand taken by Sri Lanka in voting against a joint resolution sponsored by United States and the United Kingdom to rescind an earlier resolution that “Zionism is Racism”. He said Iran admired Sri Lanka’s consistent role on the Palestinian question.

In 1991, while this resolution was presented in the UN, President Ranasinghe Premadasa was steadfast in his stand that Israel must comply with the UN Resolution 242 of 1967 and return to their earlier borders as resolved and adopted by the United Nations unanimously.

The Deputy Minister of Oil and the Government of Iran acceded to our request for deferred payment terms, initially for a period of three months and thereafter for six months to tide over our foreign exchange difficulties.

In 2012, the US imposed sanctions against import of oil and other products from Iran and this led to restrictions of imports as well as repayment of an outstanding of USD 250 million for oil imports. After 11 years repayments are being made through a barter deal by exporting tea valued around USD five million monthly and to date around USD 20 million worth of tea has been exported to Iran.

This arrangement of repayment will restore goodwill and our credibility in international markets in order to expand and widen the bilateral trade in the coming years.

(The writer was a former Mayor and Deputy Mayor of Colombo)