Partially as a result of the US trade war, India is close to achieving a breakthrough on India-EU trade relations.
When the United States imposed sweeping new tariffs on Indian exports this summer, it did more than rattle trade statistics. The shift compelled New Delhi to reassess its foreign policy and economic directions.
Over the years, India has managed a delicate balance in its ties with Washington, Beijing, Moscow, and Tehran. At the same time, it has worked to establish itself as a competitive manufacturing base and a central link in regional networks, from transport corridors and energy pipelines to digital trade routes, that connect South Asia with Central Asia, the Middle East, and beyond. The United States’ decision to double tariffs, some now as high as 50 percent, dealt a sharp blow to India’s export sectors, highlighting the risks of over-reliance on American markets.
In response, Prime Minister Narendra Modi’s government has scrambled to diversify. Two tracks have emerged. First, India is moving quickly to finalize a free trade agreement with the European Union. After years of stalled talks, negotiations are finally gaining momentum, with Germany and France at the forefront of the push. India will still need to navigate tough compromises on issues like environmental rules, auto exports, and dairy products. Even so, the European Union offers a stable, rules-based market and is thus a far more dependable partner than the often-unpredictable United States.
Second, India is exploring a limited thaw with China. Relations between the two powers remain fraught, particularly after years of deadly border clashes, but there have been recent signs of quiet de-escalation. Limited commercial channels are reopening, and both governments have signaled a desire to prevent new crises. Even a modest détente reduces supply chain risks and frees India to focus on trade diversification and domestic economic reforms.
This new balancing act has direct consequences for Iran, particularly for the fate of the Chabahar Port, a key port in the southern Iranian city of Chabahar. For more than a decade, Chabahar has been India’s answer to Pakistan’s Gwadar Port, part of China’s flagship China-Pakistan Economic Corridor. While Gwadar is a massive project anchoring China’s presence in Pakistan, Chabahar is far smaller in scale but provides India with a vital route to Afghanistan, Central Asia, and potentially Russia, bypassing Pakistan altogether. It has been a central piece of India’s strategy to connect with Eurasian markets while countering Chinese influence in the region.
Earlier this year, India Ports Global Limited (IPGL) signed a 10-year agreement to operate part of Chabahar, increasing hopes in Tehran that this long-stalled project would finally take off. Iranian officials saw Chabahar as proof that the country could resist economic isolation, attract foreign investment, and balance Beijing’s growing dominance. The port was also meant to play a central role in the International North-South Transport Corridor (INSTC), linking Indian goods to Central Asia, the Caucasus, and Europe.
But the new dynamics unleashed by US tariffs and European negotiations are pushing India toward caution rather than bold expansion. Washington has made clear that there will be no blanket sanctions exemption for dealings with Iran. While it has tolerated Chabahar’s humanitarian role, allowing wheat and medicine shipments to Afghanistan, it has repeatedly warned that commercial expansion could lead to penalties.
That warning now carries even more weight. European powers have triggered the process for UN “snapback” sanctions, citing Tehran’s lack of cooperation with the International Atomic Energy Agency after Israel’s and the United States’ June strikes on Iranian nuclear and missile sites. Snapback sanctions would automatically reinstate a comprehensive package of restrictions on shipping, insurance, and dollar-based transactions. Even if India pays Iran in rupees or euros, the withdrawal of Western service providers will raise costs and delays along the Chabahar corridor.
India’s strategy under these conditions is clear: keep Chabahar alive but low-profile. Instead of dramatic investments or high-visibility expansions, Delhi will mostly focus on maintenance, humanitarian shipments, and quiet operational improvements. This allows India to retain strategic optionality without jeopardizing negotiations with the EU or provoking Washington.
For Tehran, this is a frustrating outcome. Iranian leaders hoped that India’s role at Chabahar would give Tehran greater room to maneuver, reducing its economic reliance on China while countering US sanctions pressure. Instead, India is signaling that its priorities lie elsewhere. The combination of tariffs and snapback risk means India will be far more cautious about any move that could jeopardize its EU deal or complicate its delicate understanding with Beijing.
Meanwhile, Iran’s reliance on China grows deeper. Roughly 90 percent of Iran’s oil exports now go to China and are often routed through shadowy fleets and sold at large discounts. If snapback sanctions tighten enforcement, Beijing’s refiners will probably demand even more favorable terms, further reducing Iran’s revenues. This imbalance turns Iran into a seller with few choices, as it is locked into an asymmetric relationship where China dictates prices and payment structures.
Chabahar was one of the few tools Tehran had to demonstrate that it had alternatives. A robust Indian presence at the port would have shown that Iran could diversify its partnerships and attract other players into its orbit. If India’s role remains limited, Iran will lose that bargaining chip. In practical terms, this means China’s leverage over Iran will only increase, not just in oil sales but also in infrastructure and financial arrangements.
India’s guarded rapprochement with China adds another twist. New Delhi remains cautious about Beijing’s strategic ambitions, but a slight easing of tensions has lessened the pressure to rely on Chabahar as a counterweight to China’s presence in Pakistan’s Gwadar Port.
In recent months, the two sides have made small but meaningful gestures to dial down friction. This shift points to India’s desire to stabilize its northern border while turning its attention to tariffs and diversifying trade in other areas. With US sanctions already constraining India’s ability to expand Chabahar, easing border tensions with China would make the project’s slowdown less of a strategic loss, at least for now.
The result has been a gradual erosion of Iran’s importance in India’s broader strategy. Chabahar is likely to keep running, but more as a working port than the game-changing hub it was once intended to be. Tehran will keep pressing for deeper Indian engagement, yet the chances of that happening are slim. For New Delhi, now opening doors to European markets and carefully managing its ties with both Washington and Beijing now take precedence, leaving Iran as more of an afterthought than a central player.
For Tehran, the domestic consequences are severe. Inflation is running well above 40 percent, the rial has collapsed to record lows, trading at over one million per dollar, and public anger over rising costs and economic instability is mounting. Iranian leaders once hoped that foreign projects like Chabahar would signal resilience and attract new partners. Instead, the port now highlights Iran’s shrinking set of choices. Without robust Indian investment, Iran’s vision of becoming a key Eurasian connector will remain unrealized.
Looking ahead, three factors will shape the port’s fate. If snapback sanctions are fully reinstated and strictly enforced, costs will soar and Indian companies will keep their distance. If Tehran offers partial cooperation with nuclear inspections, enforcement may soften, allowing modest growth in non-dollar transactions. Finally, if India’s dialogue with China deepens, its need for Chabahar as a strategic counterweight may even fade further.
The trajectory is clear: Chabahar is likely to remain quieter and more limited, while Iran will grow increasingly dependent on China. For India, the port serves as a form of strategic insurance that is useful to keep on life support, but at this point, not worth provoking Washington or Brussels over. For Tehran, the stakes are far higher. Chabahar is more than a port; it is a symbol of sovereignty and resilience. If the project falters, so does Iran’s ability to chart its own economic course.
About the Author: Fatemeh Aman
Fatemeh Aman has written on Iranian, Afghan, and broader Middle East affairs for over 25 years and advised U.S. and non-governmental officials. A former non-resident fellow at the Middle East Institute and senior fellow at the Atlantic Council, a writer, producer, and anchor at Voice of America and correspondent at Radio Free Europe/Radio Liberty, her work has appeared in Jane’s Islamic Affairs Analyst, Jane’s Intelligence Review and the Stimson Center’s Middle East Perspectives. Follow her on X: @FatemehAman.
Image: Shutterstock/abdullah.jvd
