India’s ties with Iran face renewed pressure after the U.S. enforced a 25% tariff on countries doing business with both nations.
By early January 2026, anti-government protests across Tehran and other major cities had intensified dramatically, fueled by deep-seated economic grievances and political dissent. Reports indicate that the death toll from these demonstrations has surpassed 600, with thousands more arrested. The Iranian government's response has been severe, including internet blackouts across the country to limit communication and organization among protesters.
This internal crisis has provided the backdrop for a dramatic escalation in U.S. policy toward Iran. US President Trump has expanded his economic strategy, using tariffs as a leverage in negotiations with Iran and beyond Iran, to implement policies that affect India and other international trade partners.
U.S. Tariff Announcement
On January 13, 2026, President Trump announced that "any country" maintaining trade ties with Iran would face a 25% US tariff if it sought to conduct business with the United States. Effective immediately and described as "final and conclusive," this declaration represents a fundamental shift in how Washington enforces its foreign policy objectives.
Rather than targeting Iran directly, this secondary tariff mechanism aims to economically isolate Tehran by forcing its trading partners to make a stark choice: continue commerce with Iran or maintain access to the lucrative American market.
For India, this announcement arrives at a particularly sensitive moment. The country is already grappling with a cumulative 50% tariff burden imposed by Washington comprising a 25% reciprocal tariff and an additional 25% punitive duty related to purchases of Russian crude oil.
The potential addition of the Iran-linked levy would increase tariffs on affected Indian exports to the United States, fundamentally undermining the competitiveness of Indian goods in their largest export destination.
India-Iran Relations: A Strategic Partnership Under Pressure
The India-Iran relation has deep historical and civilizational roots. Until 2019, Iran was one of India's top crude oil suppliers, but this changed dramatically when the U.S. withdrew from the Joint Comprehensive Plan of Action (JCPOA) and threatened secondary sanctions on nations purchasing Iranian oil. India manoeuvred the situation by halting oil imports, fundamentally reshaping the bilateral relationship.
India's exports to Iran focus on high-value agricultural commodities and essential goods. Basmati rice forms the cornerstone of this trade, with Iran serving as a premier destination for India's rice exports, valued at $468.10 million in fiscal year 2025-26 till now. The agricultural economy of northern states like Punjab and Haryana depends heavily on this market. India also exports tea, sugar, pharmaceuticals, and manufactured fibers to Iran—trade that supports both Indian farmers and provides humanitarian assistance to the Iranian population.
The US tariff threat has already triggered immediate market reactions. Prices for premium Basmati rice varieties crashed from ₹85 to ₹80 per kilogram within days of the announcement. Indian banks have limited their payment activities in response to compliance requirements and potential sanction risks in Western jurisdictions.
Chabahar Port Dilemma
Beyond agricultural trade, the US tariff policy threatens to dismantle one of India's most significant strategic investments, the Chabahar Port in southeastern Iran. This port represents India's gateway to Central Asia and a crucial counter to China's Belt and Road Initiative.
India signed a 10-year contract in May 2024 involving $120 million for terminal equipment and a $250 million credit line for infrastructure development at Chabahar. The port was designed to serve multiple strategic objectives: bypassing Pakistan for connectivity to Afghanistan and Central Asia, reducing dependence on the Suez Canal route through the International North-South Transport Corridor, and establishing an Indian presence near the strategically vital Gulf of Oman.
However, in September 2025, the U.S. revoked the sanctions waiver that had previously allowed India to develop Chabahar without penalty. With this protection removed, continuing port operations now unambiguously falls under "doing business with Iran," triggering the 25% tariff threat on all Indian exports to the United States.
BRICS Leadership and Diplomatic Balancing
The timing of this crisis is particularly challenging as India prepares to host the BRICS summit in 2026, marking the 75th anniversary of India-Iran diplomatic ties. Iran joined BRICS as a full member in January 2024, alongside Egypt and Ethiopia. As the current BRICS Chair, India faces the delicate task of managing internal group dynamics while responding to external American pressure.
The External Affairs Minister has emphasized that as BRICS Chair, India will highlight the organization's capacity to absorb "global shocks." However, the US tariff threat is testing this resilience in real-time.
Economic Ripple Effects and Strategic Choices
The economic factors driving India's response to the tariff threat extend beyond the immediate Iran trade relationship. Presently, Indian banks and industries engage with Iran only in non-sanctioned, humanitarian goods such as food and pharmaceuticals, which are outside the scope of existing U.S. sanctions. However, Iran’s depreciating currency may pose a risk to the exports already in the pipeline.
Additionally, India's exports to the United States are valued at $86.5 billion, while trade with Iran stands at $1.68 billion. This disparity in scale is potentially a primary consideration for Indian policymakers when balancing international trade interests.
Conclusion
The January 2026 U.S. tariff announcement poses a critical challenge to India’s strategic autonomy in a rapidly polarising global trade order. However, the action may have limited impact on India as India’s engagement with Iran is largely confined to non-sanctioned, humanitarian goods, out of scope of U.S. regulations.
The impact may extend beyond trade, potentially affecting India’s agricultural exports, banking channels, and the future of the Chabahar Port project. As BRICS Chair, India must navigate these pressures while safeguarding economic interests, strategic connectivity, and policy independence amid intensifying great-power competition.
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FAQs: U.S. Tariff Threat on India-Iran Relations
1. What tariff did Trump announce on countries trading with Iran?
Ans. 25% tariff on all exports to the United States.
2. When did President Trump announce the Iran-related tariff threat?
Ans. January 13, 2026.
3. What is India's main export commodity to Iran?
Ans. Basmati rice.
4. What is the Chabahar Port project investment amount?
Ans. $120 million for equipment and $250 million credit line.
5. When did Iran join BRICS as a full member?
Ans. January 2024.