This report is from this week’s ‘Inside India’ newsletter, bringing you timely and insightful market news and commentary on the emerging powerhouse. Subscribe here.
the great story
India rarely ties its foreign policy to a single partner or bloc. But war has a way of forcing decisions.
The escalation of the US-Israel war with Iran is now forcing New Delhi to re-evaluate the two main trade corridors it had been quietly developing to reduce transit costs and time to Europe, one of its largest trading partners, with whom it recently concluded the “mother of all trade deals”.
One route runs north. The International North-South Transport Corridor: a project designed to facilitate the transportation of Indian goods to Russia, Europe and Central Asia through Iran’s Chabahar port.
Another runs west. The India-Middle East-Europe Economic Corridor, which would link India with Europe through Gulf ports, and the Israeli port of Haifa through a rail corridor.
An aerial view of the USS Abraham Lincoln Carrier Strike Group as it operated in the Arabian Sea, escorted by two military replenishment ships and two U.S. Coast Guard vessels, as fighter aircraft from Carrier Air Wing Nine conducted flight operations in the Arabian Sea, Feb. 6, 2026.
US CENTCOM | Anadolu | fake images
As the US-Israel war with Iran continues, experts say only one of India’s two big connectivity bets has a realistic future to support India’s export ambitions: IMEC.
“If Israel and the United States win, IMEC will likely be Israel’s preference over reviving Chabahar,” said Rafiq Dossani, an economist at the U.S.-based think tank RAND.
The IMEC corridor has powerful supporters. US President Donald Trump called it “one of the greatest trade routes in history” during his meeting with Indian Prime Minister Narendra Modi last year.
Israeli Prime Minister Benjamin Netanyahu described it as the “largest cooperation project in our history,” which will change the face of the Middle East.
Iran’s uncertain future is also instrumental in tipping the equation in favor of IMEC.
“If Iran does not lose the war, it will remain under sanctions. If it loses the war, sanctions can be lifted, but the benefits will be captured by the winners,” Dossani said, arguing that India’s route through Iran is a dead end.
As Tehran faces fire from US airstrikes, structural realities are reinforcing pessimism around the Chabahar trade route.
Chietigj Bajpaee, senior fellow for South Asia at Chatham House, notes that the Chabahar-Zahedan railway, a key component of the INSTC, scheduled for completion in 2026, will likely face “indefinite delays.”
The uncertainty adds to the doubts already surrounding India’s more than $120 million investment in the Shahid Beheshti terminal at the Iranian port of Chabahar. The US waiver that allowed India to operate the terminal despite sanctions is set to expire in April this year.
IMEC Economy
“IMEC may gain momentum now that INSTC has stalled,” Bajpaee said.
Although experts rule out the possibility of the INSTC passing through Iran, the very crisis that destabilizes this route also justifies India redoubling its commitment to IMEC.
Goods trade between India and Europe usually transits the Suez Canal, but due to disruption caused by the conflict in the Middle East, ships now have no choice but to take an even longer route through the Cape of Good Hope.
According to a recent report by the Indian newspaper Mint, major shippers have suspended or restricted transit through the Red Sea-Suez Canal, resulting in an increase in transit times of 10 to 20 days and freight rates between 40% and 50% higher on key routes between India and Europe.
“This conflict has shown why IMEC is a necessity and its outcome (of the conflict) would be a very important factor determining how the trajectory of IMEC evolves,” Harsh Pant, vice president of studies and foreign policy at the Observer Research Foundation, said on CNBC’s “Inside India.”
IMECs are expected to reduce logistics costs by up to 30% and transportation time by 40%, compared to traditional routes such as the Suez Canal, Indian Commerce and Industry Minister Piyush Goyal said last year.
“The IMEC presents a more significant opportunity,” said Rick Rossow, senior adviser and chair on India and emerging Asia economics at US-based policy think tank CSIS, adding that it “tracks geographically” with the markets with which India is signing trade deals.
While IMEC will emerge as a clear winner between India’s two connectivity bets, experts warn that its success depends on one crucial element: regional stability, something that is in short supply at the moment.
I need to know
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going up
March 12: India consumer inflation data for February.
March 13: RBI weekly update on India’s foreign exchange reserve.
March 16: Wholesale inflation data for February.
March 16: India unemployment rate for February.
