Introduction

The imposition of tariffs and sanctions by the U.S., especially on those countries partnering with Iran, has had significant impacts on their trade and transit activities. Due to high tariffs and secondary sanctions by the U.S., the cost and risk of doing business with Iran have increased, and it negatively affected the regional trade activities of countries such as India, Afghanistan, and Central Asian states.

Chabahar Port in Sistan-Baluchestan Province of Iran serves as a critical transit route, playing a significant role in connecting India to Afghanistan and Central Asian countries. In May 2016, India, Iran, and Afghanistan signed a trilateral agreement to develop this port, aiming to help Afghanistan overcome economic isolation and to allow India access to Central Asia without relying on Pakistan. Over the past decade, India has delivered humanitarian aid and food shipments to Afghanistan through Chabahar, especially after the collapse of the republic in 2021, tohelp with survival. The imposition of a 25% tariff on imports from certain countries and the intensification of sanctions against Iran have had negative impacts on regional economic and strategic relations, especially in the Middle East and South Asia. These policies, designed to constrain Iran’s economy, have also created difficulties for countries with broader economic ties to Tehran. India, as a key regional player and a major trading partner and investor in the strategic Chabahar Port, finds itself in a complex situation balancing strategic interests with pressure from Washington. Additionally, the closure of Pakistani borders and Afghanistan’s fragile economy have further worsened the situation.

The economic pressure of the USA on Iran is not new. During the first term of the Trump administration, heavy 25% tariffs were imposed on imports from certain countries as part of a maximum pressure campaign against Iran. These tariffs raised the cost of trade and limited Iran’s economic relations with its partners. India, one of Iran’s largest trading partners in Asia, experienced a reduction of over 30% in its oil imports and nearly a threefold decrease in non-oil goods from Iran due to sanctions and tariffs.

Despite the strategic importance of Chabahar, the 25% tariffs and U.S. sanctions have affected Indian investment in the project. New Delhi faces serious challenges due to its strategic ties with Washington and tries to balance regional interests with adherence to U.S. policies. Considering U.S. concerns and pressure on Iran, India has scaled back the development and implementation of some projects related to Chabahar after 2022. Moreover, Indian companies, wary of secondary sanctions, show less willingness to invest in Iran.

The U.S.-led tariffs and sanctions have created major challenges for bilateral and multilateral trade relations, including regional cooperation. Multilateral trade mechanisms, reduction of political tensions, and adoption of new technologies to facilitate international trade have been effective in this regard. It includes investments in alternative rail and road routes,s and enhanced economic cooperation between Iran, India, Afghanistan, and Central Asian countries has helped to mitigate the adverse effects of sanctions.

To avoid economic pressures, India aims to manage its relations with both Washington and Tehran through multilateral diplomacy. Alongside developing Chabahar, India has expanded maintenance of infrastructure projects in Afghanistan and actively participates in regional negotiations to reduce tensions. This flexible approach enables India to maintain its prominent regional role despite sanctions, although economic constraints remain a major barrier to broader development.

India’s Trade with Afghanistan and Central Asia through Chabahar Port makes the transport of Indian commercial goods at lower costs, and it also takes shorter times to reach the markets in Afghanistan and Central Asia. However, the U.S. tariffs and sanctions have forced some Indian companies and investors to slow the accelerating development on this route. Political instability and security challenges in Afghanistan, along with logistical constraints, also pose hurdles for India’s trade with Central Asia via Chabahar.

Alongside Chabahar’s development, India seeks to strengthen regional cooperation with Iran, Afghanistan, and Central Asian countries to establish a multilateral framework for sustainable development. This approach includes participation in infrastructure, security, and economic projects, which can reduce the impact ofsanctionsn and political risks and provide broader support for regional projects.

How Does India Manage Trade through Chabahar under New U.S. Tariffs on Iran?

The U.S. has imposed heavy tariffs in several phases as part of a maximum pressure campaign against Iran and its imports, directly impacting Iran’s trade and economic partners, rs including India. These tariffs have increased trade costs and raised investment risks in Iran. Secondary U.S. sanctions deter foreign companies and banks from cooperating with Iran, creating legal and financial concerns. Consequently, India faces challenges in developing the Chabahar project and trading with Central Asia through this route.

India aims to maintain a smart and realistic approach, balancing strategic interests in developing Chabahar port, economic relations with Iran and Central Asia, alongside its strategic partnership with the U.S.:

India focuses on developing port infrastructure, rail, and road links related to Chabahar that are less exposed to direct U.S. sanctions and recognized as regional development and connectivity projects.
India actively engages with Washington to clarify the nature of the Chabahar project as a transit and development corridor rather than a sanctions-evading channel. This diplomacy has been largely successful, with the U.S. granting India certain exemptions for Chabahar-related activities.
To counter financial and other sanction constraints, India is now trying to use alternative methods of transaction, such as local currencies, alternative payment systems, and barter agreements to reduce financial risks from sanctions.
Continued active diplomacy enables India to obtain more exemptions from the U.S. and manage sanction risks.
India has expanded its regional cooperation mechanism to transform Chabahar Port into a commercial and transit hub for the entire region.
It pursues alternative transit routes, especially by developing land and rail corridors through Afghanistan and Central Asia, which have proven effective in sanction management.
India, in partnership with Central Asia, can operationalize the Chabahar port to replace it for Pakistan and may overcome the sanctions.

Nevertheless, the proposed new 25% U.S. tariff will affect an extensive network of regional economic and strategic relations. The closed Pakistani borders and Afghanistan’s fragile situation elevate the importance of alternative routes, yet economic and political pressures from tariffs impose serious limitations. Hence, overcoming these challengesrequirese multilateral cooperation, smart diplomacy, and investment in regional infrastructure. India, as a key player in the region, currently also faces the challenge of balancing Washington’s pressure with its strategic interests in Chabahar’s development and trying to sustain it diplomatically.