Budget 2026: Why India allocated zero funds for Chabahar and what it means for its Iran strategy explainer news

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

There is no allocation for Chabahar for the first time in years in Budget 2026. Is this the end of India’s major Iran port project, or a temporary blockage created by geopolitics?

For the first time in almost a decade, Union Budget 2026-27 has not earmarked any funds for India Chabahar Port Project in Iran.

Over the past few years, the Center has consistently set aside Rs 100 crore annually for Chabahar; In 2025-26, the revised estimate reaches Rs 400 crore. But the new budget shows zero allocation at a time when tensions have risen between Washington and Tehran, and uncertainty looms over the fate of India’s sanctions waiver, which is valid only till April 26, 2026.

The funding shortfall comes just months after New Delhi reportedly fulfilled its financial commitments by transferring about $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 the new allocation was not technically required. But zero allocation is being read less as disengagement and more as geopolitical stagnation driven by sanctions calculations.

Geo-strategist 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 void for China to fill. So the absence of funds for Chabahar in India’s 2026-27 budget may reflect a tactical blockage rather than a strategic withdrawal, given that Washington on April 26 threatened India with a plan to cease operations or face sanctions.” A deadline has been given to do it.”

He also said India was “looking for a middle path” with Washington and described the US withdrawal of the pre-Chabahar waiver as “unnecessary”.

How Chabahar became the center of India’s regional strategy?

Chabahar is located at the mouth of the Gulf of Oman in the Sistan-Baluchistan province of Iran. It is Iran’s first deep-water port and is located just west of the Pakistan border, almost directly mirroring the situation in Gwadar, developed by China under the Belt and Road Initiative.

For Iran, the port has been presented as a means of mitigating 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 ground access.

India’s political association with Chabahar That was more than two decades ago. Discussions began in 2002, when Iran’s then National Security Advisor Hassan Rouhani 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 old roots. After partition, India’s traditional land ties with Iran and Central Asia were broken as Pakistan emerged as a hostile neighbour, although this had limited impact for several decades as India’s economy remained largely closed.

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

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

Since 2015, India has invested approximately Rs 1,100 crore in the development of the port. In 2024, India signed a 10-year agreement to operate the Shahid Beheshti Terminal, a long-expected milestone.

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

How US sanctions have shaped India’s Chabahar dilemma

Chabahar has come under the influence of change in American policy on Iran.

Trump’s return and renewed pressure campaign

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

But attitudes changed rapidly in Trump’s second term.

• September 2025: Chabahar-related sanctions come into effect. Washington had initially refused to grant the earlier exemption to India.
• A few weeks after the restrictions went into effect, a temporary six-month exemption was eventually issued in October 2025, allowing the closure of India-only operations until 26 April 2026.
• Trump later announced that countries that continued trading with Iran would face additional 25 percent tariffs.

Spokesperson of the Ministry of External Affairs (MEA) Randhir Jaiswal said in January: “As you know, on October 28, the US Treasury Department issued a letter outlining guidance on conditional sanctions waivers valid until April 26, 2026,” Jaiswal said. “We are engaged with the US side in working on this arrangement.”

US regional construction increases 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 program. This comes on top of domestic unrest inside Iran and new European sanctions on the Islamic Revolutionary Guard Corps (IRGC), further reducing India’s diplomatic room for manoeuvre.

Trump’s approach towards Iran is one of many policies that has directly weakened India. These include the harsh 50 per cent tariff on Indian exports – the highest in the world – his stance on Kashmir, his stance during Operation Sindoor and actions that have weakened India’s strategic edge in the Indo-Pacific. In this backdrop, Chabahar has shifted from being a connectivity project to a geopolitical pressure point between Washington and Tehran.

Why zero allocation looks like a pause, not a policy reversal

The absence of budget allocation does not mean that India has withdrawn from Chabahar. India has already completed its financial commitments for the Chabahar project. More than a year before the latest round of US sanctions After the reimposition, New Delhi transferred $120 million to Tehran, the entire amount given for the development of the port, according to a Economic Times Report quoting government sources.

Also, India cannot afford to violate US sanctions or impose 25 per cent tariffs, especially with the exemption set to expire in April. India is in discussion with Washington to find a workable formula before 26 April 2026 last date.

Sushant Sarin, senior fellow at ORF, argued that critics need to recognize the structural limitations facing New Delhi. He said: “India has done this not of its own free will, but out of compulsion,” challenging opponents, saying that if they feel there are alternatives, they themselves should “openly defy US sanctions”.

Overall, the situation deliberately points towards a period of waiting.

Much before the budget announcement, many strategic experts had weighed in on India’s position in Chabahar.

Former Foreign Secretary Kanwal Sibal underlined that the stakes for India were much greater than those 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 access both.” Warning of the strategic consequences of India’s exclusion, he said: “Furthermore, it opens the door for China to take India’s place in the project,” calling the sanctions pressure “geopolitically senseless.”

US-based scholar Christopher Clary, commenting on the changing nature of Washington’s approach, wrote that earlier administrations were careful not to force India into difficult choices. The current one, he said, is “like pulling the strings,” pointing to a more forceful sanctions posture.

A different perspective came from Kabir Taneja, executive director of ORF’s Middle East program, who said Chabahar has moved at a “storage pace” since 2003, but has always remained part of the India-Iran framework. “There is no reason to change this,” he said, suggesting continuity despite the delay.

There are voices within the government too that acknowledge that if sanctions are tightened further, India may be forced to back down. A senior official said at: “India has no option but to exit the Chabahar port. Fortunately, we have no assets there; we were only running the port with manpower from Iran,” he said, adding that there would be “no other option but to exit” if the US did not ease sanctions.

read more