New Delhi:
In a decision that underscores the harsh realities of power politics in an increasingly polarised global order, India has liquidated its entire financial stake in Iran’s Chabahar port, effectively exiting a project that for over a decade symbolised New Delhi’s ambition to reshape regional connectivity and strategic autonomy. The move, prompted by renewed US sanctions and explicit tariff threats from President Donald Trump, highlights the limits of India’s much-touted “multi-alignment” foreign policy when confronted with a stark economic ultimatum from Washington.
According to The Economic Times, India transferred approximately $120 million to Iran to fully settle its financial commitments linked to the development of Chabahar port. A senior government source confirmed that India now has “no liability” associated with the project and that Tehran is free to deploy the funds as it sees fit. With this transaction, New Delhi has drawn a line under one of its most strategically significant overseas infrastructure ventures.
Chabahar: From Strategic Vision to Strategic Liability
For years, Chabahar was more than a port for India. Situated on Iran’s southeastern coast, it was envisioned as a geopolitical counterweight to Pakistan’s Gwadar port—developed with Chinese backing—and a crucial gateway to Afghanistan and Central Asia. By investing in Chabahar, India sought to bypass Pakistan, gain direct access to landlocked Afghanistan, and deepen its influence across a region rich in energy resources and trade potential.
The project had long faced delays due to sanctions, financing constraints, and regional instability. Still, New Delhi persisted. In 2024, India and Iran signed a long-term contract granting India 10 years of access to develop and operate the port, breathing new life into the initiative. Just months ago, optimism lingered in policy circles that Chabahar might finally realise its promise.
That optimism has now evaporated.
Trump’s Tariff Ultimatum
The immediate trigger for India’s withdrawal was US President Donald Trump’s blunt warning on January 12, 2026, that any country continuing business with Iran would face a 25 per cent tariff on all trade with the United States. For India, already grappling with elevated US tariffs over Russian oil purchases, the threat carried existential economic implications.
Officials involved in the decision-making process described a stark cost-benefit analysis. With existing punitive duties already weighing on Indian exports, Trump’s new threat risked pushing total US tariffs on Indian goods to as high as 75 per cent—a level that would have crippled key export sectors.
Against that backdrop, Chabahar’s economic and strategic value appeared increasingly marginal. Bilateral trade between India and Iran stands at roughly $1.68 billion, compared with India’s massive trade exposure to the US market. Iranian trade accounts for just 0.15 per cent of India’s overall commerce and does not place Iran among India’s top 50 trading partners.
“The numbers left no room for sentiment,” one official said. “Protecting Chabahar simply could not justify the risk of losing access to the US market.”
A Carefully Managed Exit
India’s disengagement from Chabahar was not abrupt but meticulously orchestrated to minimise exposure to secondary sanctions. The state-owned India Ports Global Ltd (IPGL)—the entity responsible for operating the port—effectively wound down its involvement following the reimposition of US sanctions effective September 29, 2025.
Government-appointed directors resigned en masse, and IPGL’s website was taken offline, a move officials described as necessary to “insulate everybody associated with the port from potential sanctions.” The $120 million transfer to Iran was part of a broader strategy to secure a temporary six-month exemption from the US Office of Foreign Assets Control (OFAC), buying India time to disengage without triggering punitive measures against its companies or financial institutions.
“India had no choice but to exit the Chabahar port,” a senior government source said bluntly.
Strategic Utility Diminished
While US pressure proved decisive, Indian officials privately concede that Chabahar’s strategic relevance had already eroded. The Taliban’s return to power in Afghanistan significantly diminished the port’s primary utility as a transit hub for Afghan trade. Security uncertainties, combined with Iran’s internal unrest and economic fragility, further clouded the project’s long-term viability.
What once promised to be a transformational corridor linking India to Central Asia increasingly looked like a stranded asset—strategically ambitious but operationally constrained.
This confluence of factors made Chabahar easier to sacrifice when Washington tightened the screws.
Fallout for India’s Regional Strategy
India’s withdrawal marks a major setback for its regional ambitions. Chabahar was central to New Delhi’s efforts to project influence westward without relying on Pakistan-controlled routes. With the project effectively abandoned, India loses a rare foothold in Iran and a critical channel into Afghanistan and Central Asia.
Years of diplomatic capital and financial investment have been undermined, raising questions about India’s credibility as a long-term partner in infrastructure projects across politically sensitive regions.
“The damage is not just material,” said a strategic affairs analyst in New Delhi. “It’s reputational. Partners will ask whether India can stay the course when pressure mounts.”
A Blow to ‘Multi-Alignment’
The episode also exposes the constraints of India’s multi-alignment strategy—an approach designed to balance ties with competing global powers without being locked into any single bloc. In theory, this policy allows India to engage simultaneously with the US, Russia, Iran, and others, maximising strategic flexibility.
In practice, Chabahar illustrates how difficult that balance becomes when red lines are enforced by a dominant economic power like the United States.
Faced with a direct clash between US demands and its partnership with Iran, India capitulated to Washington. Analysts argue this choice, while pragmatic, chips away at India’s claim of strategic autonomy.
“This is a textbook example of middle-power vulnerability,” said one foreign policy expert. “India exercised choice, yes—but within very narrow constraints.”
The China Factor
India’s exit has also reignited speculation that China could step into the vacuum at Chabahar. With deeper financial resources and a greater willingness to defy US sanctions, Beijing is well-positioned to expand its footprint if Tehran seeks alternative partners.
Such a development would have significant geopolitical implications. Chinese involvement in Chabahar would complement its investments in Pakistan’s Gwadar port and strengthen its influence across the Indian Ocean region—precisely the outcome India once sought to prevent.
While there is no official confirmation of Chinese interest, analysts warn that New Delhi’s withdrawal could accelerate Tehran’s pivot eastward.
Economic Ripples Beyond the Headlines
Though overall trade with Iran is modest, the fallout is not evenly distributed. Specific sectors—most notably basmati rice exports, for which Iran is India’s largest market—face immediate disruption. Payment delays, banking uncertainties, and shipment bottlenecks have already emerged, threatening livelihoods in export-dependent regions.
Business leaders insist the government’s decision was not a policy “flip-flop” but a forced retreat under extraordinary pressure.
“No exporter wants to lose Iran as a market,” said a trade representative. “But the alternative was risking the US market entirely.”
Short-Term Relief, Long-Term Costs
In the near term, India’s move secures economic breathing space. By complying with US demands, New Delhi avoids potentially devastating tariffs and secondary sanctions that could have cascaded through its economy.
Yet the long-term costs are harder to quantify. Chabahar represented not just infrastructure, but intent—a signal that India was willing to invest patiently in shaping its neighbourhood. Its abandonment underscores how global polarisation limits the room for manoeuvre available to countries that lack the economic heft to openly defy superpower pressure.
A Cautionary Tale for Middle Powers
Ultimately, India’s retreat from Chabahar is a sobering reminder of the asymmetries that define today’s international system. Strategic vision can be undone by economic leverage; long-term goals can be sacrificed at the altar of short-term survival.
As one senior official put it, “This was not a choice between good and bad. It was a choice between bad and worse.”
For India, safeguarding its vital economic ties with the United States won out over preserving a strategically important but economically secondary project with Iran. The decision may be defensible—but it leaves behind uncomfortable questions about autonomy, credibility, and the future of India’s role in an increasingly unforgiving world order.
In relinquishing Chabahar, New Delhi has secured immediate relief—but at the cost of a once-bold strategic vision that may be difficult to revive.