India faces Chabahar Port dilemma as US sanctions deadline approaches
With just days remaining before US sanctions take effect on 29 September, India faces mounting pressure to decide the fate of its $370 million investment in Iran’s Chabahar Port as the window for protected operations rapidly closes.
The United States revoked sanctions exemptions on 16 September that had shielded the strategic project for several years, forcing New Delhi into a stark choice between preserving regional connectivity ambitions and avoiding potential American penalties that could affect Indian companies’ access to US markets and financial systems.
India’s Ministry of External Affairs said Friday it was still ‘examining the implications’ of the US decision, but legal experts warn that Indian individuals and corporate entities connected to Chabahar operations risk exposure to sanctions under the Iran Freedom and Counter-Proliferation Act once the deadline passes.
‘With the announced revocation of a longstanding exception for the Chabahar Port in Iran, there is significant new US secondary sanctions risk for anyone involved in the development, operation and use of the port,’ law firm Dentons warned on its website last week.
Ameeta Duggal, partner at legal firm DGS Associates in New Delhi, also cautioned that Indian individuals and corporate entities connected to the operations may expose themselves to sanctions should they continue their operations.
‘It is recommended that they temporarily suspend their operations, see what the Government of India declares for its approach, weigh in the risk against the rewards, and then decide on the way forward after September 29,’ she advised.
The original exception was issued in 2018 by then-Secretary of State Mike Pompeo, who explained that it supported Afghanistan’s economic growth and the US-India partnership. However, the State Department’s decision reflects both President Trump’s renewed ‘maximum pressure’ campaign against Iran and Washington’s changed posture toward Afghanistan following the Taliban’s 2021 takeover of Kabul.
The revocation creates mandatory sanctions exposure covering anyone determined to operate a port in Iran or provide significant support to sanctioned Iranian entities. Critically, there will be no discretion about applying sanctions once criteria are met, except for a renewable 180-day waiver requiring the Secretary of State to justify to Congress that exemption is ‘vital to US national security’, which Dentons called ‘a high bar rarely used’.
The timing creates particular pressure for India, which signed a ten-year port operation agreement with Iran in May 2025. Indian Ports Global Limited committed $120 million in investment and pledged an additional $250 million credit line for infrastructure development at the Shahid Beheshti terminal.
Duggal suggested the impact from the sanctions will be substantial, potentially forcing India to suspend its credit commitment similar to when it phased out Iranian oil purchases after previous US waiver revocations. However, she noted this situation might be different if India prioritises its regional connectivity plans and the International North-South Transport Corridor, a trade route designed to connect India, Iran, Russia, and Central Asia to Europe.
Chabahar represents more than commercial interests for India. Located just 140 km from China-operated Gwadar Port in Pakistan, it provides India a crucial gateway to Afghanistan and Central Asia while bypassing Pakistani territory. The port serves as a key node in the International North-South Transport Corridor linking India with Russia and Europe.
India has already utilised Chabahar for strategic purposes, shipping 20,000 tonnes of wheat aid to Afghanistan in 2023 and delivering medical supplies during the Covid-19 pandemic. The Ministry of External Affairs allocated 1 billion rupees, or $11.3 million, for the project in the 2024-25 budget.
Duggal recommended that India pursue bilateral dialogue with Washington, similar to discussions that prevented CAATSA sanctions over India’s S-400 missile system purchase from Russia in 2022. However, she noted that current US-India dynamics differ significantly from that period.
‘The Indian government must also announce its recommendations with respect to its expectations from Indian businesses, to ensure that the businesses, in no way, counter India’s laws and policies,’ Duggal said.
The revocation leaves India with limited options: seek new arrangements with the US to continue Chabahar operations, scale back involvement to avoid secondary sanctions, or proceed despite potential penalties while developing sanctions-resistant financial mechanisms.
