IN Brief:
- India–Iran trade has fallen from about $17 billion in 2018/19 to roughly $1.6 billion in 2025/26.
- UAE restrictions are disrupting Dubai-based payment and re-export channels used by Indian suppliers.
- Alternative routes remain possible, but additional banking, insurance, and freight costs could further suppress trade.
Indian exporters serving Iran are facing another contraction in viable trade routes after the United Arab Emirates suspended trade activities and financial transactions with Tehran, disrupting channels used for rice, tea, pharmaceuticals, and other goods still moving under humanitarian exemptions.
The immediate problem is broader than vessel routing. Dubai has provided Indian suppliers with a commercial and financial intermediary through which transactions with Iranian customers could be processed while payments were channelled through authorised banking arrangements. Removing that route leaves exporters searching for alternatives as the United States applies further economic pressure on Iran.
India’s commercial relationship with Iran had already shrunk substantially before the latest restrictions. Bilateral trade stood at around $17 billion in 2018/19 but had fallen to approximately $1.6 billion in 2025/26, with much of the remaining trade concentrated in humanitarian goods that can still be legally supplied despite wider sanctions.
Rice is among the most exposed categories. India exported approximately $383 million of rice to Iran during the first half of 2026, while tea shipments were worth about $14 million. Iran remains particularly important to premium basmati exporters in northern India, where a comparatively concentrated customer base leaves suppliers more exposed to disruption in a single overseas market.
The Indian Rice Exporters Federation represents exporters operating in a trade where legal eligibility does not necessarily make a shipment commercially straightforward. Banks, insurers, carriers, forwarding agents, and overseas intermediaries each conduct their own compliance assessments, and any one of them can decide that an Iranian transaction carries too much regulatory or reputational risk.
That distinction is becoming more important as sanctions systems grow more complex. Food and medicines may remain exempt from some restrictions, but an exemption does not oblige a commercial bank to settle the payment or an insurer to cover the voyage. Exporters can therefore find themselves holding goods that are legal to sell but increasingly difficult to finance and move.
Turkey is among the alternative routes being considered, although substituting one intermediary market for another requires more than changing a shipping instruction. Exporters may need new banking relationships, different documentary processes, revised contracts, and additional checks on the entities handling the transaction.
Those changes add cost at several points. Freight can rise if cargo has to follow a less direct route, insurance premiums can increase where geopolitical or sanctions exposure is greater, and longer settlement cycles leave suppliers financing receivables for more time. For lower-margin commodities, relatively small additions to landed cost can quickly affect competitiveness.
Smaller exporters carry less room for manoeuvre. Large trading groups can maintain several banking relationships and logistics options across multiple markets, while smaller businesses are more likely to depend on an established forwarder, overseas distributor, or payment channel. If that route closes, replacing it can consume both time and working capital.
The physical characteristics of the cargo offer only partial protection. Rice and tea tolerate longer transit and storage periods better than fresh produce, but delays still occupy warehouse space and tie up inventory. Pharmaceuticals can introduce further handling and documentation requirements depending on the product and destination.
The tightening commercial environment also affects purchasing behaviour in Iran. Importers facing greater payment friction or more expensive logistics can reduce order sizes, delay purchases, or seek substitute suppliers that retain easier access to workable settlement channels. Indian exporters may therefore lose volume even where a technically compliant route remains available.
Sanctions exposure also follows the financial chain rather than stopping at the border. A transaction routed through a third country still depends on the intermediary bank, trader, and logistics provider being prepared to handle it. Additional US secondary sanctions increase the risk that businesses with access to the dollar system will simply decline Iranian transactions rather than test the limits of what remains permissible.
For procurement and logistics teams, the practical task is to establish an end-to-end route that works commercially as well as legally. Export documents, carriage, insurance, banking, and counterparty checks have to align before the shipment can move with any confidence that payment will follow.
India’s overall exposure to Iran is far smaller than it was several years ago, limiting the effect on national trade volumes. The remaining business, however, is concentrated enough to create sharp sector-level consequences, particularly for exporters that still regard Iran as a core market.
The Dubai channel had allowed part of that residual trade to continue despite sanctions. Its disruption removes another piece of commercial infrastructure from an already narrow route to market, leaving Indian suppliers with fewer counterparties, more compliance work, and a higher cost of getting otherwise exempt goods to Iranian buyers.
