India’s zero allocation for Iran’s Chabahar port in this year’s Budget has raised debate on the fate of this strategically important project. Several experts, however, believe it is more of a pause rather than an exit — until the sanctions’ environment becomes more predictable. The reduction comes at a time when US President Donald Trump has intensified sanctions and military pressure on the Ayatollah regime.
On 12 January 2026, Trump announced that any country doing business with Iran would face a 25 per cent tariff on all trade with the US. This raises the stakes beyond traditional sanctions. It signals a move towards wider trade punishment. It also forces partners to treat Iran-related activity as a whole-of-economy risk.
The tightening began earlier. In September 2025, Washington moved to end the 2018 sanctions waiver linked to Chabahar. This step exposed entities involved in port operations to potential penalties under the Iran Freedom and Counter-Proliferation Act (IFCA), a US law that authorises sanctions on foreign entities that do significant business with Iran, especially in Iran’s shipping, shipbuilding and energy sectors, as well as port operators.
India then sought limited operational space while avoiding escalation. On 30 October 2025, the Ministry of External Affairs announced a six-month extension of the US waiver for India. This extension was reportedly secured after India shared a wind-down plan. The exemption was time-bound and conditional. It was effective until 26 April 2026.
India’s Chabahar plan now carries a sanctions risk. That risk depends on how India set up the deal. On 13 May 2024, India Ports Global Limited (IPGL) signed a 10-year contract with Iran’s Ports and Maritime Organisation to operate the Shahid Beheshti terminal at Chabahar. India also sent the agreed money to Iran in advance. Indian officials say it has already paid what it promised. But payment is only one part. The bigger issue now is whether the port can keep running smoothly. US sanctions, tariffs and strict compliance rules can still make operations difficult. This can blunt the strategic value India has attached to Chabahar.
Why Chabahar is important for India
First, Chabahar remains India’s only workable gateway to Afghanistan that bypasses Pakistan. Geography leaves India with limited options to reach Afghanistan and Central Asia. Pakistan’s refusal to provide transit space blocks the most direct land route. That makes Iran the practical alternative. India has also already transferred the committed funds to Iran, which means it cannot easily pause the project without paying a strategic cost for an investment it has effectively already made. This matters even more as India recalibrates its engagement with Kabul and focuses on trade-and-transit outcomes.
Second, Chabahar anchors India’s credibility on connectivity. The 10-year contract signed was meant to end a cycle of short renewals and uncertainty. India’s advance fund transfer further underlines that this was designed as a durable arrangement, not a symbolic one. If India retreats now, it does not only lose operational access. It also signals that even paid-up commitments can be disrupted by external pressure. That weakens India’s standing when it pitches other corridor projects such as the International North-South Transport Corridor (INSTC).
Third, Chabahar is not formally positioned as an anti-China project, but it reduces India’s dependence on routes and nodes where China, or China-Pakistan, can shape outcomes during crises. If India steps back after already paying into the arrangement, it creates space for competitors to expand influence around a key maritime-continental junction on India’s western flank. Over time, commercial infrastructure can translate into political leverage. India should not make that handover easier.
Fourth, Chabahar is not just commercial. It has enabled humanitarian shipments and supported regional stability, especially for Afghanistan. This is why the US previously accommodated limited Chabahar-related activity. That logic still holds, even if US politics on Iran has hardened. India should make a clear, practical case to Washington. India has already met its financial commitments, so the immediate issue is not new funding. It is operational continuity. If the US constrains Chabahar too aggressively, it could narrow safe channels for Afghan trade.
A litmus test of India-US alignment
The Trump Administration seems less willing to view Chabahar mainly as an Afghanistan-related exception. It increasingly looks like a test of how far India is willing to keep its distance from Iran. President Trump’s tariff warning adds to this pressure. It signals an economy-wide tool that can discourage even limited or technically permitted engagement.
In this situation, India should not react in panic or retreat quietly. Chabahar is not just a business project. It is strategic infrastructure that protects India’s access and options for regional connectivity. The real problem is that sanctions pressure often works through over-compliance. Even if there is no direct ban, banks may refuse transactions, insurers may step back and companies may avoid contracts. Operations can stall simply because private actors do not want the risk. At the political level, any change in India’s activity at Chabahar can be read in Washington as a signal. That turns a connectivity project into a measure of geopolitical alignment.
India has already met its financial commitment, but this does not remove the broader sanctions risk. Running a port still requires many routine actions. These include contracting service providers, buying equipment, paying vendors, arranging repairs, and securing shipping and insurance. Any of these steps can trigger compliance concerns if they touch sanctioned entities or restricted sectors. There is also perception risk. Even when a waiver exists, banks and firms may still refuse to participate because they fear enforcement action or sudden policy changes.
In conclusion, the cost of leaving Chabahar is likely to be higher than the cost of staying, provided India manages the risk smartly. A retreat would mean writing off a decade of political capital and sunk investment, including funds India has already paid, while also weakening India’s only viable route to Afghanistan that bypasses Pakistan. It would damage India’s credibility on connectivity just when it is pitching other corridors like INSTC, and it would create space for competitors to shape the maritime gateway on India’s western flank. Staying, by contrast, does carry sanctions and over-compliance risk, but those risks can be narrowed through careful operational design, strict compliance, targeted engagement and sustained diplomacy with Washington to keep Chabahar framed as a stabilising trade-and-humanitarian corridor.
(The writer is Research Analyst, Centre for Military Affairs, MP-IDSA. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.)
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