Outlook Explainer: Trump’s 25% Iran Tariff Ultimatum, What It Means For India and Global Trade

The latest announcement from United States President Donald Trump that any country that continues to do business with Iran will now face a 25 per cent tariff on all trade with the United States. Announced via a social media post and described as “final and conclusive”, the move signals a sharp escalation in Washington’s economic pressure on Tehran and sends ripples far beyond the Middle East.

The move could have far-reaching consequences for US trade relations with China, India, the United Arab Emirates, and the European Union. According to news reports, a White House spokesperson declined to comment on Trump’s social media post when approached.

The announcement represents Trump’s first tariff decision of 2026 and is consistent with his long-standing reliance on economic pressure as an instrument of foreign policy. Yet the absence of detail has unsettled both governments and financial markets. No guidance was offered on exemptions, implementation timelines or how the measures would be enforced.

Direct trade between the US and Iran remains negligible, reflecting decades of sanctions imposed over Tehran’s nuclear programme. Official figures show that in 2025 the US imported Iranian goods worth $1.3 million and exported $47.9 million. In 2024, imports totalled just $6.2 million, while exports to Iran stood at a little over $90 million, according to the US Commerce Department.

India in the firing line

For India, the implications are potentially severe. New Delhi has long walked a diplomatic tightrope, balancing its strategic relationship with Washington against its pragmatic trade ties with Tehran. That will become harder to maintain.

India is already grappling with a 25 per cent reciprocal tariff imposed by the US, alongside another 25 per cent levy linked to its continued purchases of Russian crude oil. The addition of a further 25 per cent tariff tied to Iran-related trade would push the cumulative burden on Indian exports to 75 per cent, a level that could significantly dent competitiveness across sectors.

Indian officials have not yet issued a formal response, but the concern is evident. Trade bodies warn that higher tariffs could ripple through supply chains, raise costs for exporters, and complicate investment decisions at a time when India is positioning itself as a global manufacturing hub.

Depth of India–Iran trade

Despite years of sanctions and geopolitical pressure, India and Iran have maintained a resilient, if modest, trading relationship. According to the Indian Embassy in Tehran, India has consistently ranked among Iran’s top five trading partners in recent years.

Indian exports to Iran span everyday essentials and value-added goods: basmati rice, tea, sugar, pharmaceuticals, fresh fruit, pulses, soft drinks and processed meat products. In return, India imports items such as methanol, petroleum bitumen, liquefied propane, apples, dates, almonds and a range of organic and inorganic chemicals, commodities that feed directly into construction, agriculture and manufacturing.

In the 2022–23 financial year, bilateral trade rose to $2.33 billion, representing a strong year-on-year increase of nearly 22 per cent. This growth was driven largely by Indian exports, which reached $1.66 billion, while imports stood at $672 million and rose as energy-related products regained momentum. However, this upward trend later weakened. Between April and July 2023, total bilateral trade fell by more than 23 per cent compared with the same period the previous year, highlighting the relationship’s vulnerability to external pressures. Trade during January–October 2024 and January–October 2025 also contracted by 3.62 per cent. During this period, total exports amounted to ₹8,812.19 crore, imports to ₹2,796.81 crore, and the trade surplus narrowed to ₹6,015.37 crore.

Beyond trade figures, there is also strategic infrastructure at stake. The Chabahar Port project, jointly developed by India and Iran, has long been viewed as a gateway for humanitarian aid and commercial access to Afghanistan and Central Asia. India continues to back the project, seeing it as both a regional stabiliser and a counterweight to rival ports backed by China. Fresh US tariffs could complicate financing, insurance and logistics linked to Chabahar, even if the project itself remains politically supported.

A world watching closely

India is not alone in weighing its options. Major economies including China, Russia, Brazil, Türkiye, Iraq and the United Arab Emirates all maintain trading links with Iran. For many, the US decision raises uncomfortable questions about complying with Washington and curtail trade, or push back and risk punitive tariffs.

The announcement also comes against a backdrop of heightened tensions with Tehran. Trump has repeatedly accused Iran of reviving its nuclear and military ambitions and has openly threatened further strikes. US air attacks on Iranian nuclear facilities last year, during a brief but intense regional conflict, continue to cast a long shadow over diplomatic efforts.

Last year, Trump warned that he would slap tariffs on any country buying Russian oil, but in practice he has targeted only India, sparing China. The move led to a 20 per cent fall in India’s exports to the US in September 2025, the first full month after the 50 per cent tariffs came into force. At the same time, exports of telecom equipment to the US, much of it outside the tariff net, especially smartphones, jumped sharply, rising by 237 per cent between September and November 2025. Shipments of electrical machinery also increased, up 15 per cent over the same period.

In March 2025, Trump issued a similar warning, threatening a 25 per cent tariff on countries purchasing Venezuelan oil or gas, although the measure appears never to have been enforced.

Globally, the tariff threat reinforces a broader trend towards fragmented trade blocs and transactional diplomacy. As sanctions, counter-sanctions and tariffs are imposed, middle powers find themselves navigating an increasingly unforgiving landscape, where economic choices are inseparable from geopolitical allegiance.