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India-Iran Trade Strained by US Tariffs

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  Published in Business and Finance on Thursday, February 5th 2026 at 15:53 GMT by Business Today
      Locales: INDIA, IRAN (ISLAMIC REPUBLIC OF), UNITED STATES

New Delhi, February 5th, 2026 - The trade relationship between India and Iran remains under significant pressure as the lingering effects of US tariffs, initially imposed by the Trump administration and largely maintained by subsequent administrations, continue to reshape commercial dynamics. While crude oil continues to flow from Iran to India, the non-oil trade sector is facing substantial headwinds, forcing Indian businesses to diversify and adapt to a new geopolitical landscape.

Initially introduced several years ago, the tariffs were designed to curtail Iran's revenue streams and exert pressure on its nuclear program and regional policies. These measures targeted nations maintaining significant trade ties with Iran, effectively penalizing companies dealing with the Islamic Republic. India, a historically strong trading partner of Iran, has been notably affected.

From Basmati to Kiwis: The Impact on Key Exports

Prior to the intensification of US sanctions and tariff implementation, India enjoyed a robust non-oil export market in Iran. Key commodities such as premium basmati rice, tea, apples, and kiwis were particularly prominent, representing a substantial portion of India's total exports to the country. Data from 2025 indicates a nearly 60% decrease in the volume of these goods shipped to Iran compared to pre-tariff levels in 2019. The decline isn't simply a matter of reduced volume; the disruption has also impacted pricing and market share for Indian exporters.

"The tariffs essentially made our products uncompetitive in the Iranian market," explains Rajeev Sharma, a representative of the All India Rice Exporters Association. "While we could technically still export, the added cost passed on to Iranian importers, combined with increased competition from alternative sources, priced us out. We've had to aggressively seek new markets, a process that isn't without its own challenges."

Oil Trade: A Delicate Balance

Despite the difficulties in the non-oil sector, India continues to import crude oil from Iran, a crucial component of India's energy security. However, this trade is now conducted under a complex set of arrangements designed to adhere to US guidelines and avoid secondary sanctions. These arrangements involve utilizing alternative payment mechanisms, often routing transactions through third-party banks and utilizing rupees for trade settlement. This process adds significant layers of complexity and cost to the oil trade.

Analysts predict the continued reliance on these workaround mechanisms is unsustainable in the long term. "India's dependence on Iranian oil remains, but the logistical and financial burden of circumventing sanctions is growing," says Dr. Anya Verma, a geopolitical economist at the Delhi Policy Group. "This situation is pushing India to diversify its oil import sources, increasing its reliance on nations like Saudi Arabia, Iraq, and the United Arab Emirates."

Diversification and New Opportunities

Indian businesses are actively responding to the trade disruptions by exploring new export markets. Southeast Asia, Africa, and Latin America have emerged as potential destinations for goods previously destined for Iran. The process involves adapting product packaging, meeting new regulatory requirements, and establishing new distribution networks, all of which require significant investment and strategic planning.

The Indian government has also stepped in with initiatives aimed at supporting exporters. These include export promotion schemes, financial assistance for market research, and diplomatic efforts to secure favorable trade agreements with alternative partners. However, the transition isn't seamless. Many smaller exporters lack the resources to navigate these challenges effectively, leading to consolidation within the industry.

Geopolitical Implications and Future Outlook

The US tariffs on Iran represent a broader geopolitical strategy aimed at influencing Iran's behavior. The impact on India-Iran trade is a clear demonstration of the interconnectedness of international commerce and the vulnerability of businesses to geopolitical events. The situation underscores the need for diversification and resilience in supply chains.

Looking ahead, the future of India-Iran trade hinges on several factors, including the evolving geopolitical landscape, potential shifts in US policy, and the willingness of both India and Iran to adapt to changing circumstances. While a full restoration of pre-tariff trade levels seems unlikely in the near future, continued dialogue and a pragmatic approach to trade relations are crucial for mitigating the negative consequences and exploring potential opportunities for collaboration. The recent thaw in diplomatic relations between Saudi Arabia and Iran, brokered by China, could also create new avenues for regional trade and potentially ease some of the pressure on India-Iran commerce, though this remains to be seen. The long-term effect will likely see India increasingly prioritize trade relationships that are less susceptible to unilateral pressure from other nations.