Donald Trump’s decision to impose a sweeping 25 percent tariff on any country “doing business” with Iran has landed as an immediate economic shock for India. India had been, until a few years ago, the second largest importer of Iran oil after China.
With New Delhi already facing elevated US duties, the latest move threatens to push cumulative tariffs on some Indian exports to as high as 75 percent, putting billions of dollars of trade with India’s largest export market at risk. While the order is framed as a response to Iran’s crackdown on protests, its most direct fallout is economic — and India is among the hardest hit.
The new tariff adds to an already strained India–US trade relationship. India is currently subject to a 25 percent reciprocal tariff imposed by Trump, along with another 25 percent penalty linked to its continued purchases of Russian crude oil. The Iran-linked levy effectively piles a third layer of tariffs on Indian exports to the US, raising the cost of Indian goods overnight and weakening their competitiveness in the American market.
In contrast, India’s trade exposure to Iran is relatively small. Bilateral trade stands at around $1.68 billion, and India stopped importing Iranian oil in 2019 to comply with earlier US sanctions. However, Indian exporters remain active in Iran, supplying basmati rice, tea, sugar and pharmaceuticals. Faced with the prospect of losing access to the US market — far more valuable than Iranian trade — many Indian firms may be forced to abandon Iran altogether.
Beyond trade flows, the biggest strategic uncertainty surrounds India’s investment in Iran’s Chabahar Port. The port is central to India’s long-term plan to access Central Asia and Afghanistan while bypassing Pakistan. Although the US had earlier granted temporary waivers recognising Chabahar’s strategic role, Trump’s description of the order as “final and conclusive” raises doubts over whether those exemptions will survive. Any disruption would undermine years of Indian diplomatic and financial investment.
Analysts also see the timing of the tariff as deliberate leverage. The announcement comes amid sensitive trade discussions between New Delhi and Washington, with the US pressing India on market access and supply-chain realignment. The Iran tariff functions as a blunt negotiating tool, designed to force quicker and broader concessions.
China, Iran’s largest trading partner, faces even larger risks, but India’s dilemma is more immediate. Caught between strategic interests and economic survival, New Delhi must now decide how much room it truly has to resist Washington’s latest pressure tactic.