India and Iran Trade: How India Managed the Oil Shock and Found Smarter Partners

 

In 2018, India was one of the biggest buyers of Iranian oil. The two countries shared a strong energy bond. But by 2024, that oil trade dropped to zero. What happened?

This is a story about smart decision-making, tough diplomacy, and how India handled a global oil crisis without hurting its economy. It’s also a lesson in how to stay prepared when the world changes fast.

Back in 2018: Iran Was a Key Oil Partner for India

India and Iran have been trading for centuries. In modern times, especially in energy, the partnership has become stronger.

By 2018:

• India imported about 23.5 million tonnes of crude oil from Iran.
• This cost India nearly ₹1.1 lakh crore (roughly $15 billion).
• Iran was India’s third-largest oil supplier, after Iraq and Saudi Arabia.

Beyond oil:

• India exported basmati rice, tea, sugar, medicines, and chemicals to Iran.
• Non-oil trade between the two countries was worth ₹24,000 crore ($3 billion).

But this changed rapidly in 2019.

The Turning Point: U.S. Sanctions Shut the Oil Tap

In May 2019, the United States imposed strict sanctions on Iran under its CAATSA law (Countering America’s Adversaries Through Sanctions Act).

The U.S. warned all countries: If you buy oil from Iran, you could face penalties.

India was stuck. Either continue buying oil from Iran and risk U.S. sanctions, or stop and find new suppliers. India chose the safer route.

What changed after May 2019?

• Oil imports from Iran dropped to zero.
• In 2018–19, Iran supplied 10% of India’s oil. By 2020, that became 0%.
• The ₹1.1 lakh crore oil trade vanished overnight.

India needed alternatives — fast.

India’s Smart Move: New Oil Suppliers at Better Prices

India didn’t panic. It started importing oil from other countries, especially those offering better deals.

Russia Became India’s Top Oil Partner

• In 2021, Russia supplied only 2% of India’s oil.
• By 2024, that number jumped to 35%.
• Why? Russia sold oil at a discount due to Western sanctions.
  • Russian oil was around ₹5,000 per barrel (approx $60)
  • Global oil price was ₹6,800–₹8,000 per barrel ($80–100)

India saved over ₹40,000 crore (about $5 billion) each year by buying discounted Russian oil.

Other top suppliers in 2023–24:

• Iraq: 20% of India’s oil imports
• Saudi Arabia: 16%
• UAE: 10%

With this shift, India secured its energy supply without depending on Iran.

India’s Back-Up Plans: More Than Just Oil

India didn’t just switch oil partners. It made deeper, long-term changes to protect itself from future price shocks.

1. Oil Storage for Emergencies

• India built Strategic Petroleum Reserves (SPR) to store oil.
• Current reserve: 5.33 million tonnes
• That’s enough to fuel the country for 9.5 days if imports stop.
• In 2022, when oil prices spiked due to the Russia–Ukraine war, India used its reserves to control domestic prices.

2. Renewable Energy Expansion

• India doubled its solar and wind energy capacity from 2019 to 2024.
• Installed renewable capacity reached 125 GW in 2024 (up from ~63 GW in 2019).
• This reduced crude oil dependency from 85% to 80% of India’s total energy needs.

Cleaner energy means less pressure on oil imports and more price stability.

What About India-Iran Trade Now?

Even though oil trade stopped, the overall relationship didn’t end. Non-oil trade continued, though at a smaller scale.

India-Iran Trade (2022–24)

• Total annual trade: around ₹16,000 crore ($2 billion)
• Indian exports to Iran include:
  • Medicines: ₹3,200 crore/year (around $400 million)
  • Basmati rice: About 1.2 million tonnes/year
  • Tea, sugar, wheat, chemicals, steel

Iran is still a key buyer of Indian pharmaceuticals and agricultural products. So, while the oil money dried up, other sectors kept the trade channel open.

The Strategic Bet: Chabahar Port

One of India’s smartest and quietest investments in Iran is the Chabahar Port.

Why Chabahar Matters:

• Located in southeast Iran, it gives India direct access to Afghanistan, Central Asia, and Europe, bypassing Pakistan.
• India invested around ₹4,200 crore ($500 million) to develop it.
• In 2023, the port handled over 2.5 million tonnes of cargo.

Future Vision:

• Chabahar’s target capacity: 10 million tonnes/year
• It will become a vital link in the International North-South Transport Corridor (INSTC):
  • A trade route from India → Iran → Russia, → Europe
  • Could cut shipping costs by 30%
  • May handle up to ₹1.3 lakh crore ($16 billion) in trade annually

Despite U.S. pressure, India sees long-term strategic value in staying involved at Chabahar.

What If U.S. Sanctions End? Will India Buy Oil from Iran Again?

Even if the U.S. lifts sanctions tomorrow, India may not return quickly to Iranian oil.

Here’s why:

• Russia now offers cheaper oil with no sanction risks for India.
• Payment with Iran is difficult, as banks avoid dollar transactions.
• India’s new oil partners are working smoothly — changing them again adds risk.
• Some oil may still be bought indirectly from Iran via “grey markets”, but not officially.

Instead, India may focus on non-oil trade and infrastructure cooperation with Iran.

Key Figures: A Quick Summary

Key Indicator	Value (2023–24)
Iran’s share in India’s oil imports	0% (down from 10% in 2018)
Russian oil share	35% (up from 2% in 2021)
India’s savings from Russian discounts	Over ₹40,000 crore/year
Chabahar Port investment	₹4,200 crore
Chabahar cargo handled (2023)	2.5 million tonnes
India’s oil emergency stock (SPR)	5.33 million tonnes
Non-oil trade with Iran	₹16,000 crore/year
Indian pharma exports to Iran	₹3,200 crore/year
Basmati rice exports to Iran	1.2 million tonnes/year
Renewable energy capacity	125 GW (doubled since 2019)

Conclusion: India’s Quiet Oil Revolution

India faced a major challenge in 2019. Losing a top oil supplier could have caused a crisis. But instead of reacting with panic, India made a carefully planned shift.

• It diversified its oil imports and found better deals.
• It expanded renewable energy and reduced oil dependency.
• It invested in future routes, such as Chabahar, and maintained strong regional ties.

Today, India is more energy-secure, cost-efficient, and geopolitically flexible than it was five years ago.

The Iran chapter in India’s oil story may have paused, but the wider trade relationship remains alive and evolving.