Indian basmati may get caught in US 'economic onslaught' on Iran

US secondary sanctions on Iran could further hit India's basmati exports, while disruptions in the Strait of Hormuz threaten freight costs and crude-oil supply risks

The Donald Trump administration’s “Operation Economic Outcast” — aimed at strangling the Iranian economy after nearly six months of war failed to deliver a decisive military outcome — could further squeeze India’s already dwindling trade with Iran and raise freight and crude-oil risks across West Asia. 

While the Trump administration is yet to give details of its “economic onslaught” on Tehran, US Treasury Secretary Scott Bessent has pressed countries to take immediate action, threatening secondary sanctions over their Iran exposure. Bessent said additional sanctions, including against a large financial institution, would be announced in the coming days and weeks. 

India exports about 5-6 million tonnes of basmati rice annually, with nearly 1 million tonnes destined for Iran. Almost 60 per cent of India’s $1.3 billion of exports to Iran in FY26 comprised basmati rice. 

Basmati exporters fear secondary sanctions could further choke supplies to one of their biggest markets. Between April and June 2026, India exported about 120,847 tonnes of basmati rice to Iran, nearly 62 per cent less than in the year-ago period, traders said. 

“The closure of the Strait of Hormuz and the difficulty in transporting goods to Iran has already impacted our basmati rice exports since April 2026. A further squeeze on supplies will hurt an already badly hit market,” said a Haryana-based rice exporter.  

Satish Goel, president of the All India Rice Exporters Association, said the real crunch would come if the UAE stops processing payments for rice sold to Iran because of the sanctions. Last week, the UAE suspended all trade and financial ties with Iran following missile threats.

 

“Most of our buyers are based in the UAE. If US sanctions stop payments routed through the UAE for supplies to Iran, there will be a real problem. So far, we haven’t heard anything of that sort,” Goel said.

 

Some traders, however, said exporters would have to develop alternative channels, given the recurring nature of sanctions on Iran. “We have to find alternative routes both for transferring cash and for getting goods to Iran because it is too big a market to be left unserved,” another trader said.

 

India’s trade with Iran has plunged from $17 billion in FY19 to $1.6 billion in FY26, after New Delhi halted crude purchases from the sanctions-hit economy. India imported $707 million worth of Iranian crude in April and May under a temporary US exemption before stopping purchases from June.

For India, the bigger threat may not be its shrinking trade with Iran but the expanding reach of US secondary sanctions, particularly as Indian businesses remain exposed to Russian imports and the risk of a prolonged Gulf conflict, said Ajay Srivastava, founder of the Global Trade Research Initiative.

 

The widening US crackdown reached India’s trade ecosystem on Tuesday, when the US Department of State sanctioned four India-based companies over Iranian petroleum and petrochemical trade. They include Gujarat-based customs broker Portease Partners and two of its designated partners, accused of facilitating shipments of Iranian petrochemical products to India. The move raises compliance and financial risks for Indian businesses dealing with Iran, even where their direct exposure is limited.

 

Prashant Vashisht, senior vice president and co-group head of corporate ratings at Icra, said the latest uncertainty could increase vessel transit times and push up freight rates. “From a freight-rate perspective, the issue is that the average number of vessels transiting the Bab-el-Mandeb has now fallen to 22 from around 77 earlier. Some vessels are taking the longer Cape of Good Hope route. For India and other major importers, diversification of oil supplies in recent months has meant longer transit times and higher freight costs,” he said.

 

Vashisht said, however, that global crude prices were unlikely to rise much further because traffic through the Strait of Hormuz has already fallen sharply. “Given that volumes have already come down and most oil-production facilities in West Asia are shut, the additional volumes at risk will be only around 0.5 million barrels a day for China. This could be one reason oil prices have not moved much,” he said.

 

Brent crude fell 3.2 per cent to about $89 a barrel, its lowest level in a week.

 

The immediate measures may appear less dramatic than Washington’s rhetoric, but the bigger question is how aggressively the US will enforce secondary sanctions against Iran’s remaining trading partners, said Jorge León, senior vice president and head of geopolitical analysis at Rystad Energy.

 

“China is the key. Iranian crude exports have already fallen sharply because of the blockade, and Beijing is essentially the only significant buyer left. Unless China materially reduces purchases further, the additional impact on Iranian oil revenues could be relatively limited,” León added.