Modi-Iran Meeting Tests US Sanctions Warning to Trade Partners

The Trump administration is intensifying its pressure campaign against Iran with a sanctions push dubbed “Operation Economic Outcast,” while warning that countries maintaining business ties with Tehran could face severe secondary penalties.

The approach is creating a diplomatic squeeze for nations such as India, a major U.S. partner with interests that still run through Iran.

New Delhi is central to Washington’s Indo-Pacific strategy, yet India also has commercial, energy and strategic stakes in Iran that it is unlikely to abandon outright — a balancing act that could put it on a collision course with the Trump administration.

On Monday, one week after the Trump administration rolled out its latest sanctions initiative, Indian Prime Minister Narendra Modi met Iranian President Masoud Pezeshkian on the sidelines of the Shanghai Cooperation Organization summit in Kyrgyzstan. The talks marked their first face-to-face meeting since war erupted six months earlier.

An Iranian account of the meeting said Pezeshkian urged Modi “to use India’s extensive contacts” to help move the parties involved away from war and back toward diplomacy, while also thanking the Indian leader for his support of Tehran. Modi, for his part, reaffirmed New Delhi’s desire to deepen its “long-standing friendship” with Iran and to “expand and diversify” bilateral trade.

“That was for Modi to signal to a domestic audience that he is not kowtowing to Trump,” Council on Foreign Relations Senior Fellow Sadanand Dhume told News Outlet. “India-Iran relations have already been largely hollowed out by previous rounds of sanctions, so there is no question of India trying to balance between the U.S. and Iran,” he added.

Secretary of State Marco Rubio was pressed on Modi’s meeting with the Iranian president Tuesday by Fox News’ Brian Kilmeade during an appearance on “The Brian Kilmeade Show.”

Rubio said he didn’t think there was a trade deal between India and Iran — noting many countries around the world talk to Tehran — and stated, “What ultimately happens, though, is – and the President’s been very clear – is no country should be helping Iran evade sanctions. No country should be out there helping them create mechanisms by which they can generate revenue that they will then use to sponsor terrorism and try to build a nuclear weapon. And if countries decide to do that, then we’re going to have to sanction them too.”

A U.S. official echoed Rubio’s comments and told News Outlet that, “the Administration continues to have positive discussions with our economic partners to ensure Iran never possesses a nuclear weapon.”

India has been among Iran’s top five trading partners in recent years, though bilateral trade has dropped dramatically since its 2018-19 peak.

New Delhi’s exports to Iran are concentrated on goods that can carry humanitarian exemptions, including pharmaceuticals. Iran is also the second-largest overseas market for Indian rice, with India exporting more than $383 million worth in the first six months of the year.

Conversely, India resumed importing Iranian crude oil for the first time in seven years in April, after the Trump administration temporarily lifted sanctions to soften the Middle East conflict’s impact on global energy. Iranian oil shipments to India were valued at roughly $707 million in the first half of the year.

India has already come into the Treasury Department’s crosshairs, with the U.S. sanctioning four India-based companies and three Indian nationals over alleged links to Iranian petroleum and petrochemical trade.

The Treasury Department says countries will receive a defined timeline to shut down Iran-related activity as identified by Washington. That puts banks, shippers, insurers and trade intermediaries on notice before any further penalties are imposed. The United Arab Emirates’ suspension of commercial and financial dealings with Iran has already squeezed Indian exporters, as Dubai has long served as a key hub for trade with Iran.

So far, Washington’s initial actions have stopped short of targeting India’s wider commercial relationship with Iran.

Iran, meanwhile, has warned of “grave consequences” for countries that cooperate with what it calls illegal U.S. behavior.

India’s interests in Iran also run beyond commerce. The Chabahar port, Iran’s only deep-water oceanic port, provides maritime routes linking India to Russia and Europe. It also gives India an access route to Central Asia that bypasses Pakistan. But U.S. sanctions uncertainty has repeatedly complicated India’s operations there.

India, the world’s third-biggest oil importer and consumer, has already faced the cost of the Middle East conflict, through energy disruptions, higher import costs and inflation. It has also shown it will resist U.S. pressure when core interests are at stake. 

For instance, it has defended ties with Russia, despite Moscow’s adversarial relationship with Washington. But experts argue Iran no longer carries the same weight.

“The Russian example is strikingly different. New Delhi shares close military and diplomatic ties with Moscow that are much more important to India than its ties with Iran, notwithstanding lip service to the latter,” Dhume said. “Higher global oil prices hurt India, but India weaned itself off Iranian oil imports a while back.”

For the U.S., squeezing major economies like India over their ties to Tehran could pose a diplomatic risk. U.S. national security officials stress the need for a workable strategic relationship with India, especially to counterbalance Chinese power.

Under President Trump’s second term, once-blooming US-India relations have been under strain. Trump and Modi sought to reset the relationship just months ago, but the latest Iran sanctions could test it again.

But the U.S. retains enormous leverage over India, particularly when it comes to trade.

“If forced to choose, New Delhi will obviously and emphatically choose its valuable commercial relationship with the U.S. over its skimpy trade ties with the Islamic republic,” Dhume said.

The timing is notable, with Chinese President Xi Jinping reportedly set to visit India for next week’s BRICS summit. Russian President Vladimir Putin and Iranian President Masoud Pezeshkian are also expected to attend.

Analysts say the impact will ultimately depend on how aggressively Washington moves from warnings and diplomacy to actual secondary sanctions. That is particularly true with India, where more aggressive enforcement risks further straining U.S. relations with a strategically important partner.

“The U.S. should learn from its own past success in quietly persuading India to generally kick its Iran oil habit.” Dhume said. “Quiet diplomacy works better with India than bluster. This is the key lesson from the past that the Trump administration appears to be forgetting.”

The Indian government did not respond to News Outlet requests for comment.