Budget 2026: Why India Allocated Zero Funds For Chabahar And What It Means For Its Iran Strategy

Last Updated:February 02, 2026, 13:42 IST

Budget 2026 makes no allocation for Chabahar for the first time in years. Is this the end of India’s flagship Iran port project, or a temporary freeze shaped by geopolitics?

Last September, the United States had enforced stringent economic sanctions on Iran, while allowing India a temporary six-month exemption for its involvement in the Chabahar port project. (File pic/AFP)

For the first time in nearly a decade, the Union Budget 2026–27 has earmarked no funds for India’s Chabahar port project in Iran.

Over the years, the Centre consistently set aside Rs 100 crore annually for Chabahar; in 2025–26, revised estimates reached Rs 400 crore. But the new Budget shows zero allocation at a time when tensions between Washington and Tehran have surged, and uncertainty hangs over the fate of India’s sanctions waiver, valid only until 26 April 2026.

The absence of funding comes just months after New Delhi reportedly completed its financial commitments by transferring around $120 million to Iran. Earlier this year, reports suggested that India had effectively exited its on-ground role after making these payments, which may also explain why a fresh allocation was not technically required. But the zero allocation is being read less as disengagement and more as a geopolitical pause driven by sanctions calculations.

Geostrategist Brahma Chellaney said in a tweet, “Chabahar Port is India’s only viable route to Afghanistan and Central Asia that bypasses Pakistan. An Indian exit would almost certainly leave a vacuum for China to fill. The absence of funding for Chabahar in India’s 2026–27 Budget may therefore reflect a tactical freeze rather than a strategic retreat, given Washington’s April 26 deadline for India to wind down operations or face sanctions."

He also noted that India is “exploring a middle path" with Washington and described the US withdrawal of the earlier Chabahar exemption as “gratuitous".

How Chabahar Became Central To India’s Regional Strategy

Chabahar sits at the mouth of the Gulf of Oman in Iran’s Sistan–Balochistan province. It is Iran’s first deepwater port and lies just west of the Pakistan border, almost directly mirroring the position of Gwadar, developed by China under the Belt and Road Initiative.

For Iran, the port has been projected as a means to mitigate the impact of Western sanctions by opening alternative trade routes. For India, it provides a vital route to Afghanistan and Central Asia that bypasses Pakistan, which has consistently denied overland access.

India’s political engagement with Chabahar dates back more than two decades. Discussions began in 2002, when Hassan Rouhani, then Iran’s National Security Advisor, held talks with his Indian counterpart Brajesh Mishra. A year later, during President Mohammad Khatami’s 2003 visit to New Delhi, he and Prime Minister Atal Bihari Vajpayee signed a cooperation roadmap that identified Chabahar as one of its key projects.

The need for such a route has older roots. After Partition, India’s traditional land links with Iran and Central Asia were severed as Pakistan emerged as a hostile neighbour, though this had a limited impact for several decades because India’s economy remained largely closed.

The regional situation changed significantly after the Taliban seized power in Afghanistan in 1996. India and Iran, both opposed to the Pakistan-backed Sunni Islamist militia and aligned with the Northern Alliance led by Ahmed Shah Massoud, found their strategic interests converge. As Pakistan blocked India’s land access to Afghanistan, New Delhi’s search for alternative routes became increasingly urgent.

Chabahar had also been seen as a potential route within the International North–South Transport Corridor (INSTC), the trade link connecting India with Russia and further into Europe through multi-modal transport. However, Iran’s own domestic legal requirements slowed progress, leading to repeated delays.

Since 2015, India has invested about Rs 1,100 crore into the port’s development. In 2024, India signed a 10-year agreement to operate the Shahid Beheshti terminal, a long-sought milestone.

In his tweet, Brahma Chellaney warned that an Indian withdrawal from Chabahar would “almost certainly leave a vacuum for China to fill."

How US Sanctions Have Shaped India’s Chabahar Dilemma

Chabahar has been caught in the crossfire of shifting US policy on Iran.

Trump’s return and the renewed pressure campaign

In 2018, Donald Trump withdrew from the Iran nuclear deal (JCPOA) and restored full sanctions on Tehran. India received a Chabahar-specific exemption because the port was considered vital for Afghanistan’s stability. This waiver continued during Joe Biden’s presidency.

But in Trump’s second term, the approach changed sharply.

• September 2025: Chabahar-related sanctions went into effect. Washington initially refused to extend the earlier waiver to India.
• A temporary six-month waiver was eventually issued in October 2025, weeks after sanctions took effect, permitting only a wind-down of India’s operations until 26 April 2026.
• Trump later announced that countries continuing to trade with Iran would face an additional 25 per cent tariff.

Ministry of External Affairs (MEA) spokesperson Randhir Jaiswal said in January: “As you are aware, on October 28, the US Department of Treasury had issued a letter outlining the guidance on the conditional sanctions waiver valid till April 26, 2026," Jaiswal said. “We remain engaged with the US side in working out this arrangement."

US regional build-up adds pressure

The US has significantly expanded its military presence around Iran in recent weeks, with President Trump repeatedly threatening Tehran with military strikes if it refuses to return to the negotiating table over its nuclear programme. This comes on top of domestic unrest inside Iran and new European sanctions on the Islamic Revolutionary Guard Corps (IRGC), further shrinking India’s diplomatic room for manoeuvre.

Trump’s approach to Iran is one of several policies that have directly undermined India. These include the drastic 50 per cent tariff on Indian exports — the highest in the world — his positions on Kashmir, his stance during Operation Sindoor, and moves that have weakened India’s strategic leverage in the Indo-Pacific. Against this backdrop, Chabahar has shifted from being a connectivity project to a geopolitical pressure point caught between Washington and Tehran.

Why The Zero Allocation Looks Like A Pause, Not A Policy Reversal

The absence of a Budget allocation does not automatically mean India has stepped back from Chabahar. India has already completed its financial commitments for the Chabahar project. More than a year before the latest round of US sanctions was reimposed, New Delhi transferred $120 million to Tehran, the full amount it had pledged for the port’s development, according to an Economic Times report citing government sources.

At the same time, India cannot risk violating US sanctions or triggering the 25 per cent tariff, especially with the waiver expiring in April. India remains in discussions with Washington to find a workable formula before the 26 April 2026 deadline.

ORF senior fellow Sushant Sareen argued that critics needed to recognise the structural limits New Delhi faces. He stated: “India did this not out of choice but out of compulsion," challenging detractors by saying that if they believed there were alternatives, they should “openly defy US sanctions" themselves.

Taken together, the situation points to a period of deliberate waiting.

Long before the Budget announcement, several strategic experts had weighed in on India’s position at Chabahar.

Former foreign secretary Kanwal Sibal underlined that the stakes for India were far higher than for Iran. He wrote on X: “Chabahar is a connectivity project that gives India access to Afghanistan and Central Asia. Iran does not need Chabahar to have access to both." Warning of the strategic consequences of India being pushed out, he added: “Also, it opens the door to China to supplant India in the project," describing the sanctions pressure as “geopolitically senseless."

US-based scholar Christopher Clary commented on the changing nature of Washington’s approach, writing that earlier administrations were careful not to force India into hard choices. The current one, he said, “likes tugging on strings," pointing to a more coercive sanctions posture.

A different view came from Kabir Taneja, Executive Director at ORF’s Middle East programme, who noted that Chabahar has progressed at a “snail’s pace" since 2003 but has always remained part of the India–Iran framework. “No reason for that to change," he said, suggesting continuity despite delays.

There are also voices within government who acknowledged that if sanctions tightened further, India might be compelled to step back. A senior official told ET: “India has no choice but to exit the Chabahar port. Fortunately, we don’t have any assets there; we were only running the port with manpower from Iran," adding that there would be “no other option but to exit" if the US did not ease sanctions.

News explainers Budget 2026: Why India Allocated Zero Funds For Chabahar And What It Means For Its Iran Strategy

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