Trump threat of 25% tariff on countries doing business with Iran presents a dilemma for India

US President Donald Trump’s latest tariff threat on countries doing business with Iran has posed a dilemma for India: New Delhi stands to gain from concluding a trade pact with the US early, even as it seeks long-term trade and strategic presence in West Asia.

In a post on Truth Social, Trump said that any country trading with Iran would pay a 25% tariff on all business done with the US, “effective immediately”. Trump said the order was final, without clarifying its legal basis, scope or enforcement. There was no clarity on whether the tariffs would apply across sectors or to all of Iran’s trading partners.

The warning comes at a sensitive moment for New Delhi. India’s trade with Iran remains modest but steady, with exports of $1.24 billion and imports of $441.8 million in FY25. In FY24, exports stood at $1.22 billion and imports at $625 million. In the first six months of FY26, exports stood at $693 million, and imports at $177 million, according to the commerce ministry.

“The government will assess the potential impact of the proposed US tariff measures,” a senior official said on the condition of anonymity. New Delhi is yet to make a formal announcement on the matter.

The first reaction to Trump's announcement came from China, a key trading partner of Iran. Beijing opposed the tariff, calling it unilateral and extraterritorial sanctions, adding it would take all necessary measures to protect its interests and reiterating that tariff and trade wars have no winners.

Queries emailed to the commerce ministry were not immediately answered.

Since India already faces a steep 50% tariff from 27 August, a fresh 25% tariff for trading with Iran would put significant pressure on Indian goods exported to the US, even as trade between New Delhi and Washington continues to increase.

“While Iran is no longer a major energy supplier to India, New Delhi continues to see strategic and connectivity interests in the region, even as it deepens trade and investment ties with the US,” said Amit Singh, associate professor at the Special Centre for National Security Studies, Jawaharlal Nehru University.

India’s presence in Iran is anchored by its 10-year operating lease of the strategic Chabahar port, a vital gateway intended to bypass Pakistan and connect Indian goods to Central Asian markets. While bilateral trade remains modest, the relationship serves as a critical pillar of New Delhi’s focus on strategic autonomy, allowing it to maintain a foothold in the Persian Gulf.

Iran, which is witnessing its biggest anti-government protests in years and has seen heightened tensions with the US and Israel, said it was keeping communication channels with Washington open as Trump weighed further steps, while signalling the possibility of talks alongside threats of tougher action.

Trump's announcement came a day after Sergio Gor, the new US ambassador to India, reiterated Washington's commitment to concluding trade and strategic engagements with New Delhi. The tariff announcement poses new uncertainty to global trade flows and raises questions for countries such as India that maintain limited commercial ties with Tehran.

Tariffs, under US law, are paid by American importers, but Trump's announcement has revived concerns over indirect pressure on countries maintaining trade links with Iran, which has been under heavy US sanctions for years.

Meanwhile, trade talks with the US, which were originally planned to conclude by the fall of 2025, are making slow progress. Earlier, on 9 December 2025, US trade representative Jamieson Greer told the US Senate that India had put forward the “best offer the US has ever received”, as his deputy, Rick Switzer, met India’s commerce secretary, Rajesh Agarwal, on 10 December to advance trade negotiations.

The US was India’s largest trading partner for the fourth straight year in 2024-25, with bilateral trade valued at $131.84 billion.

However, exports to the US have been impacted in FY26 due to steep tariffs. Exports held up at first despite a 10% duty, rising from $8.4 billion in April to $8.8 billion in May, before easing slightly in June and July.

The impact became clearer in August, when exports fell to $6.8 billion as tariffs were increased in quick steps, reaching 50% by the end of the month. In September, the first full month under higher tariffs, exports dropped further to $5.5 billion, the lowest level of the year.

However, exports picked up again, touching $6.3 billion in October and $6.9 billion in November, showing that exporters began to adjust to the higher duties. To be sure, India's overall goods exports rose to $38.13 billion in November 2025, the highest for the month in the past decade, extending the recovery seen after the pandemic years.