Chabahar, crude and chaos: The broader impact of the US‑Iran tensions on India
Trump’s 25% tariff on countries trading with Iran, plus possible US intervention, could threaten India’s Chabahar Port investment and stir global oil price volatility, even as trade with Iran remains minimal.
US President Donald Trump has announced fresh tariff threats, this time targeting any country doing business with Iran with a 25% tariff. For India, the immediate trade risk is limited, given its minimal imports from Iran. However, its strategic investments in the Chabahar port could face pressure, and broader regional destabilization, driven by political unrest in Iran and potential US intervention, poses a larger challenge.
India and Iran have historically shared close trade and cultural ties, but the relationship has often been constrained by US sanctions. When the Trump administration reinstated sanctions in 2018, enforcing a “zero-oil" policy, India sharply reduced its imports from Iran. As a result, imports plummeted from $13.5 billion in FY19 to just $440 million by FY25, with oil imports falling from $12.3 billion to $70 million.
Experts note that India could likely eliminate the remaining imports without serious economic impact. On the export side, India sends around $1.2 billion in goods to Iran, accounting for only 0.3% of total shipments. A significant portion of this is rice, which analysts believe could be curtailed to avoid the additional 25% tariff, layered atop the existing 50% tariff.
Strategic risks
The bigger concern lies in India’s investment in Iran’s Chabahar port—a long-term strategic project designed to bypass Pakistan and access Afghanistan and West Asia. The project has repeatedly been caught in the crossfire of US-Iran tensions.
In September 2025, the US reimposed sanctions on entities linked to the port but later granted a six-month exemption through diplomatic negotiations, set to expire in April 2026.
India inaugurated the first phase of the port’s modernization—the Shahid Beheshti Terminal—in 2017. While the terminal’s annual cargo-handling capacity is 8 million tonnes, US threats have slowed progress, with actual throughput hovering around 2.2 million tonnes annually, as per data shared in the Parliament.
“India bilateral trade with Iran is negligible, but port investment is a key pain point and it is not clear such business will be under purview of tariffs given we currently enjoy temporary exemption from sanctions" said Abhishek Upadhyay, senior economist at ICICI Primary Dealership. He added that India may have to hold off on any investments for some time and take a view later once there’s more clarity on the US decision.
In 2024, India signed its first long-term overseas port agreement to operate Chabahar in partnership with Iran. Under the deal, Indian Ports Global Ltd (IPGL) committed about $120 million for operations and pledged to raise an additional $250 million to support surrounding infrastructure. The uncertainty surrounding US sanctions now puts these investments at risk.
Spillover effects
Beyond tariff threats, the US has signalled potential intervention in Iran’s political unrest, raising the risk of broader regional destabilization. Trump’s post on Truth Social on Tuesday, addressing Iranian protestors with the message that “help is on the way," underscores this possibility.
“The risk really is if this leads to greater destabilization with greater involvement from larger players in West Asia," said Sakshi Gupta, principal economist at HDFC Bank.
In June 2025, the 12-day war between Israel and Iran, with military intervention by the US, had led to heightened risks of disruptions in West Asia. Oil prices had jumped 13-17%, with Brent crude reaching around $80 per barrel, and shipment costs surged as markets feared closure of the Strait of Hormuz, which Iran controls and through which 20% of the world’s oil flows. War risk premiums for cargo ships more than tripled to 0.7% of the value of the ship from 0.2% during the conflict period.
Since Iran is the fourth largest producer in the Organization of the Petroleum Exporting Countries (OPEC), the political unrest and greater destablization in the region could change the math around oil supply, which was expected to be in abundance in 2026.
According to Barclays, unrest in Iran has added about $3-$4 a barrel in geopolitical risk premiums, Reuters reported. Gupta holds a similar view: “If all of the Iranian supply goes out, which is an extreme case, it removes the whole bearish story around oil."
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