Can US-Iran Tariffs Impact India’s Strategic Trade Interests?

US President Donald Trump has imposed a 25 per cent tariff on countries that continue trading with Iran, aiming to increase pressure on Tehran amid ongoing anti-government protests.

Nevertheless, India may not materially be impacted by this ruling. Officials and analysts point to the limited trade relationship between India and Iran since 2019. India’s exports to Iran rose marginally by 1.5 percent to USD 1.24 billion year on year in FY25. Imports fell 29.3 percent to USD 441.8 million. This reflects a significantly reduced level of bilateral trade.

The trade relations between India and Iran have significantly decreased in the last five years due to US sanctions and banking limitations.

However, given India’s strategic concerns in the region and shifting global supply chain patterns, a question remains unanswered. Will this situation lead to indirect hazards for India’s diplomacy, logistics, or trade position in the long run?

Why Is the Tariff Expected to Have a Limited Impact on India?

India significantly reduced its commercial relations with Iran in 2019, especially in crude oil imports. Before sanctions, Iran was one of the big oil suppliers to India. That relationship has now been substituted with sourcing from the Middle East, Russia, and the US.

Trade officials have indicated that at present, India’s imports from Iran are negligible, and exports are mostly limited to humanitarian goods, including food and medicines, which are usually not subject to sanctions-related penalties.

Policymakers tend to view tariff announcements more as a symbolic measure than a major disruption to the Indian economy, given their limited direct impact.

What About Strategic Projects Like Chabahar Port?

Although the trade volumes are low, India is still retaining a strategic presence in Iran via the Chabahar Port, which is regarded as a crucial entrance to Afghanistan and Central Asia. The port has been granted waivers from US sanctions in the past because of its significance in the region.

According to the recent tariff announcement, there’s no direct targeting of infrastructure and connectivity projects such as Chabahar by the officials. Even so, the experts say that the whole situation is still uncertain and this could worsen if there are more geopolitical tensions.

India faces the difficulty of managing its strategic priorities along with the compliance needs, especially while getting closer to the US and its allies. The main point of contention is if alignment with the powers could one day limit the aspirations of India in the region.

Could There Be Indirect Economic or Market Implications?

India might dodge the direct fault line of trade, but it cannot be said that there is no broader market implications left. Steep sanctions against Iran could have an impact on global oil prices, shipping insurance, and the supply routes in the region, all of which will reflect later on inflation and trade balances.

Moreover, market players are eager to see the impact of other major economies on the tariff announcement. Retaliation or changes in trade partnerships will likely affect India's emerging market through currency fluctuations or capital flows.

The risks for investors are generally under control. Nevertheless, the changing geopolitical landscape raises a question that has been asked many times. Can India's trade strategy really endure when the world of commerce is so divided?

Sources:

India Today
Economic Times
NDTV