How the Iran–US–Israel conflict exposes the fragility of India’s foreign policy and the unequal burden of its economic fallout
THE 2026 Iran-US-Israel conflict has significantly disrupted India’s strategic and economic interests, placing the country in a difficult position of juggling energy security, regional stability, and strained diplomatic ties with Iran. The conflict has triggered rising oil prices, disrupted shipping through the Strait of Hormuz, and intensified inflationary pressures across global markets.
India’s energy security is particularly vulnerable. Nearly 60% of its Liquefied Petroleum Gas (LPG) demand is sourced from the Gulf region. As tensions escalate, fuel prices rise and supply chains become uncertain. The consequences are immediate and far-reaching. India must cope simultaneously with energy instability and economic strain – a challenge made more difficult by its already fragile economic foundations.
While India continues to project itself as one of the world’s fastest-growing major economies, this aggregate growth conceals deep structural imbalances. The World Inequality Report 2026 reveals a stark concentration of wealth: the top 10% hold 58% of national income and nearly 65% of total wealth, while the bottom 50% account for only 15% of income. The top 1% alone controls around 40% of the country’s wealth. Some analysts suggest that inequality levels today surpass those seen under colonial rule. India’s economic story, therefore, is not merely one of growth, but of profound imbalance.
It is within this unequal landscape that India’s foreign policy choices acquire deeper significance.
India now faces renewed uncertainty over the future of the Chabahar Port, a critical project designed to connect India to Central Asia and Afghanistan while bypassing Pakistan. The expiration of US sanctions waivers on April 26, 2026, has placed the project under strain. India is engaged in negotiations with both Washington and Tehran, even considering the transfer of its stake in the Shahid Beheshti Terminal to an Iranian entity in order to avoid US penalties.
This moment is not merely a diplomatic inconvenience. It is a revealing test of India’s foreign policy trajectory. Once projected as a symbol of strategic autonomy, Chabahar now exposes the limits of that autonomy in a world shaped by financial hierarchies and geopolitical pressure.
For years, Chabahar was framed as India’s answer to Pakistan’s denial of overland access and as a counterweight to China’s growing presence at Gwadar Port under the China-Pakistan Economic Corridor. It represented India’s aspiration to engage its extended neighbourhood independently, treating Iran as a long-term partner rather than a geopolitical risk.
Yet the current crisis reveals how fragile that aspiration remains. India’s willingness to dilute its stake under external pressure signals not flexibility, but retreat. It raises a difficult question: can strategic autonomy be sustained if key decisions are ultimately shaped by external constraints?
This is not an isolated episode. India has previously adjusted its Iran policy in response to US pressure—from reducing oil imports following the US withdrawal from the Joint Comprehensive Plan of Action to slowing investments in Chabahar. What distinguishes the present moment is the cumulative effect of these adjustments. Over time, they begin to erode India’s credibility as an independent actor in West Asia.
To be sure, India’s constraints are real. The global financial system remains deeply dollar-centric, and US sanctions carry extraterritorial consequences. Indian banks, insurers, and corporations operate within this system; outright defiance is costly. But there is a difference between recognising constraints and internalising them as limits to action. The danger lies in slipping from strategic caution into strategic hesitation.
There are also broader geopolitical consequences. Iran is unlikely to remain indefinitely patient with a partner that appears hesitant and transactional. As Tehran deepens its engagements with China and Russia, India risks being sidelined in a region where it once enjoyed considerable goodwill. Chabahar, instead of becoming a gateway, risks becoming a missed opportunity.
This episode also exposes a deeper contradiction in India’s foreign policy. On the one hand, India speaks the language of multipolarity, sovereignty, and Global South solidarity. On the other, its actions often reflect a hierarchy of relationships in which alignment with the United States takes precedence over regional commitments. This duality may offer short-term flexibility, but it is strategically unsustainable.
The issue, therefore, is not simply whether India can “save” Chabahar. It is whether it can redefine the terms of its engagement – with both Washington and Tehran. Can it negotiate arrangements that reflect its developmental and connectivity needs? Can it build financial and logistical systems that reduce vulnerability to sanctions? Or will it continue to respond to crises without addressing the structural imbalance at the core of its foreign policy?
The project itself remains vital. India has already committed $120 million and has explored various options to sustain involvement. Yet the situation also raises questions about diplomatic direction. Subrahmanyam Jaishankar has often stated that India will act when its interests are recognised. While this position reflects a pragmatic instinct, in the current context it risks appearing narrowly transactional. Foreign policy cannot be reduced to a ledger of gains and concessions; it must be guided by a coherent set of principles.
India today appears to oscillate between postures – non-alignment in rhetoric, alignment in practice; autonomy in speech, caution in action. This is not strategic flexibility. It is strategic ambiguity. And sustained ambiguity begins to resemble opportunism.
A principled foreign policy does not require moral grandstanding, but it does demand consistency. India’s engagement with Iran, the United States, and the wider Gulf must be grounded in a clear framework: energy security as a public good, trade as mutual interdependence, and regional stability as a shared responsibility. It also requires resisting the normalization of unilateral sanctions as instruments that define sovereign decision-making.
India must therefore recalibrate—not by choosing sides, but by reshaping the architecture of its engagements. This includes reviving long-term energy partnerships with Iran through alternative currency mechanisms, diversifying supply through deeper ties with Saudi Arabia, United Arab Emirates, and Russia, and investing in financial and logistical systems less vulnerable to external pressure. Projects like Chabahar must be treated as strategic commitments, not negotiable assets.
The crisis triggered by the 2026 Iran–US–Israel conflict is, therefore, more than a moment of disruption. It is a test—of whether India will continue to navigate the world through cautious adjustments and episodic compromises, or whether it will articulate a coherent, principled foreign policy rooted in sovereignty, equity, and mutual dependence.
What remains insufficiently confronted in India’s strategic discourse is the direct transmission belt between foreign policy failure and domestic suffering. Rising oil prices do not remain confined to global markets; they ripple through the economy – raising transport costs, inflating food prices, and tightening already fragile household budgets. In a country where large sections survive on precarious incomes, energy shocks do not dissipate. They accumulate. They deepen inequality.
This is where the external and the internal converge. A foreign policy that yields under pressure abroad redistributes economic pain at home. The costs of compliance—higher import bills, currency volatility, inflation – are borne disproportionately by those least able to absorb them.
In that sense, the uncertainty surrounding the Chabahar Port is not merely a geopolitical setback. It reflects a deeper pattern in which strategic hesitation produces economic vulnerability – and that vulnerability sharpens social inequality. The insulated economy of wealth coexists uneasily with a fragile everyday economy under strain.
There is also a longer historical perspective to consider. Nations that fail to secure stable access to energy while maintaining policy independence often drift into cycles of dependency—economically constrained, politically reactive, and strategically diminished. India stands close to that threshold. It is not inevitable – but it is visible.
The real question, therefore, is not whether India can manage this crisis. It is whether it is willing to rethink the foundations of its foreign policy. Energy security cannot remain a technocratic concern, nor diplomacy a theatre of calibrated ambiguity. Both must be anchored in a commitment to economic justice and policy sovereignty.
Strategic autonomy cannot be claimed. It must be built—patiently, structurally, and with the courage to act when principles demand it. If India continues to approach the world through caution without conviction, it risks becoming a power that speaks of autonomy but practices accommodation. And in that widening gap—between ambition and action – lies not just the danger of economic decline, but the quiet erosion of sovereignty itself.
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Ranjan Solomon is a writer, researcher and activist based in Goa. He has worked in social movements since he was 19 years of age. The views expressed here are the author’s own and Clarion India does not necessarily share or subscribe to them. He can be contacted at ranjan.solomon@gmail.com
