How Vulnerable Are Indian Exporters To Trump’s 25% Iran Tariff?

In a bid to escalate economic pressure on Iran, US President Donald Trump on January 12 imposed a 25 per cent tariff on countries that continue doing business with Tehran. Trump’s fresh tariff-led pressure tactic has raised concerns for countries with commercial relations with the Islamic Republic.

“Any Country doing business with the Islamic Republic of Iran will pay a Tariff of 25% on any and all business being done with the United States of America,” Trump wrote on Truth Social, describing the move as “effective immediately” and “final and conclusive”.

Trump’s tariff tactic is not just limited to Iran alone. It could have far-reaching consequences for several large economies that continue to do business with Tehran. Countries such as China, Iraq, the United Arab Emirates, Turkey, Brazil and Russia, all of which have significant commercial links with Iran, are likely to come under pressure. India, too, could feel the impact, as it continues to be among Iran’s five largest trading partners despite a sharp contraction in bilateral trade over the past few years.

Already At 50%, US Tariffs On India Could Climb To 75%

The latest tariff threat comes on top of the existing trade pressures India currently faces from the US. India is already subject to tariffs of up to 50 per cent in the US market, of which 25 per cent is a “punitive” one for continuing to buy Russian-origin crude oil.

Trump’s Iran-linked tariff is an add-on to existing duties, which potentially could take effective tariffs on some goods exported to the US as high as 75 per cent. This could significantly erode price competitiveness for Indian exporters in the world’s largest consumer market.

Rial’s Freefall Pushes Iran Deeper Into Economic Turmoil

Iran’s national currency, the rial, is in a free fall. The crisis-hit country’s currency has plunged to dangerously new lows that seem almost beyond repair, leaving it nearly worthless against major global currencies and indicating the severity of the country’s economic crisis.

On Iran’s open market, one US dollar now buys around 11,37,500 rials, while one Indian rupee fetches about 12,607 rials, according to Google Finance data.

Iran Protests: How a Depreciating Currency Spiraled Into Nationwide Protests

The currency collapse is the very reason for the ongoing widespread protests across Iran over the past two weeks. What began as demonstrations against rising living costs and economic crisis has spiralled into a broader movement against Iran’s authoritarian clerical regime led by Supreme Leader Ayatollah Ali Khamenei.

Iranian authorities have acknowledged the economic crisis but have responded with a heavy security crackdown and accused external forces of instigating and fuelling the protests. According to media reports, the unrest has claimed more than 600 lives so far.

Iran’s economy has been under continuous pressure for years due to US and European sanctions linked to its nuclear programme. A 12-day war with Israel in June, during which the US launched strikes on Iranian nuclear facilities, further strained the country’s finances. The situation deteriorated further in late December, when the rial slid sharply amid persistently high inflation. This is what prompted merchants and university students to take to the streets.

Amid the violence, Trump on January 11 warned Iran of military action if the killings did not stop. Iranian authorities responded on January 12, stating that they were prepared to retaliate but also maintained that they are open to diplomacy.

Trump’s Iran Tariffs: How Significant Is India-Iran Trade Today

In absolute terms, India’s direct trade exposure to Iran has reduced significantly over the years. According to data from the Ministry of Commerce and Industry, India’s exports to Iran stood at $1.24 billion in FY25, while imports were $0.44 billion, taking total bilateral trade to $1.68 billion.

The bilateral trade has declined sharply from FY19, when total trade between the two countries was $17.03 billion. Exports have fallen from $3.51 billion, while imports have shrunk from $13.53 billion, largely due to sanctions and payment constraints.

India’s Embassy in Tehran notes on its website that major Indian exports to Iran include basmati rice, tea, sugar, fresh fruits and pharmaceuticals. Major imports include items such as methanol, petroleum bitumen, liquefied propane, dry dates, chemicals and nuts.

“Iran’s importance as a direct trading partner for India has diminished sharply over the past several years,” said Vaqarjaved Khan, CFA, senior fundamental analyst at Angel One. “From a pure trade volume standpoint, Iran is not a material market for Indian exporters, and the loss of this trade is economically manageable.”

However, he cautioned that secondary tariffs could pose asymmetric risks. “While India’s trade with Iran is relatively small, India’s exports to the US are significantly larger. Any tariff-induced loss of competitiveness in the US market could materially impact export-oriented sectors such as textiles, engineering goods, IT services and pharmaceuticals.”

Khan also flagged wider ripple effects that could follow, including higher crude oil prices, disruptions to shipping, rising insurance costs, and increased risk premiums. “These factors could affect inflation, the current account balance, the rupee and overall market sentiment,” he said.

Rice Accounts for the Biggest Share of India’s Trade with Iran

Rice is by far the largest item India exports to Iran. Data from the World Integrated Trade Solution shows that India exported 7,45,254 tonnes of rice to Iran in 2024, worth roughly $698 million. This made up nearly 57 per cent of India’s total exports to the country that year.

By comparison, India’s total rice exports globally in FY24 were around 1,80,42,900 tonnes, valued at about $11.65 billion. Exports to Iran, therefore, accounted for roughly 6 per cent of the total value and 4 per cent of the total volume of India’s rice exports worldwide.

For Indian exporters, the immediate economic impact of Trump’s 25 per cent tariff on countries trading with Iran may be limited, but the real concern lies in the risk of sharply higher tariffs in the US market.