India weighs future of Iran's Chabahar port as US sanctions clock runs out

Eleven years are a long time in international relations.

Ever since India and Iran signed an inter-governmental MoU on 6 May 2015 regarding New Delhi's participation in the development of the strategically located Chabahar seaport in south Iran, it has often been projected as a centrepiece of relations between the two countries.

However as the US sanctions waiver for the Chabahar port ends today (26 April 2026), putting at risk India's deep financial and political investment, India's diplomacy faces a stern test.

Under the MoU inked in 2015, just a year before Prime Minister Narendra Modi's maiden visit to Iran in May 2016, Indian and Iranian commercial entities would be in a position to commence negotiations towards finalisation of a commercial contract under which Indian firms will lease two existing berths at the port and operationalise them as container and multi-purpose cargo terminals.

The availability of a functional container and multipurpose cargo terminal at Chabahar port would provide Afghanistan's road network system an alternative access to a seaport, significantly enhancing Afghanistan's overall connectivity to regional and global markets and providing a fillip to the ongoing reconstruction and humanitarian efforts in that country.

Notably, the signing of a trilateral agreement on establishing Chabahar transport and transit corridors took place during Modi's visit in the presence of President Rouhani, Prime Minister Modi and Afghan President Ashraf Ghani.

Iran too has welcomed Indian investment in setting up plants in sectors like fertilisers, petrochemicals and metallurgy in the Chabahar Free Trade Zone.

An Indian company, India Ports Global Limited (IPGL), through its wholly owned subsidiary, India Ports Global Chabahar Free Zone (IPGCFZ), started operating the port in 2018.

On 13 May 2024, IPGL signed a ten-year contract with the Ports and Maritime Organisation of Iran for equipping and operating the Shahid Beheshti terminal of Chabahar port. As per the provisions of the contract, India put in US$120 million for the procurement of port equipment.

On 16 September 2025, the US revoked the sanctions exception issued in 2018 under the Iran Freedom and Counter Proliferation Act 2012 for Afghanistan's reconstruction and economic development. The US extended the conditional sanctions waiver until 26 April 2026 to help India wind down its association with the project.

With the sanctions waiver period expiring, Indian media reports said a proposal has been worked out for IPGL to sell its holding in India Ports Global Chabahar Free Zone (IPGCFZ) to a local Iranian entity.

Knowing the looming threat of American sanctions, why did India go ahead with its involvement with Chabahar port? Its strategic importance could not be overstated. It lies close to Pakistan's Gwadar port bankrolled by China. Secondly, Chabahar is a gateway for the proposed transport corridor, a multimodal trade route linking India with Central Asia and Russia, aimed at cutting transport time between the regions.

A much bigger picture conjured by Chabahar port is that it would link energy-rich Central Asia and Europe with South Asia and Southeast Asia through an under-construction, India-funded trilateral highway through Myanmar to Thailand. This would put India as a bridge between two key regions of the world.

Now that the US-Iran military face-off shows no sign of a quick end and the prospects of extension of US sanctions on Chabahar port look dim, Indian officials are not hopeful of another extension even though Indian and American officials have reportedly been engaged since October last year.

The fallouts of the West Asia war, for which neither Iran nor India are responsible, has already caused some rough edges in relations between New Delhi and Tehran. Will Chabahar port be the next victim of another conflict in an already unstable world?