Prime Minister PM Modi's meeting with Iranian President Masoud Pezeshkian at the Shanghai Cooperation Organisation Summit has drawn a pointed response from Washington.

US Secretary of State Marco Rubio said he does not believe India and Iran are negotiating a new trade deal, even though Modi publicly said after the meeting that New Delhi wants to “expand and diversify” its trade with Tehran. But Rubio's response came with an equally important warning: countries that help Iran evade US sanctions or create mechanisms that allow Tehran to generate sanctioned revenue could themselves face American penalties.

The exchange puts India's delicate relationship with Iran back under scrutiny. New Delhi wants to maintain India Iran relations, preserve its strategic interests at Chabahar Port and keep communication with Tehran open. At the same time, it must navigate an increasingly aggressive American sanctions regime against Iran.

PM Modi Meets Masoud Pezeshkian in Bishkek

PM Modi met Masoud Pezeshkian in Bishkek on August 31 on the sidelines of the 26th Shanghai Cooperation Organisation Summit. The leaders discussed bilateral relations, trade and the continuing conflict in West Asia. After the meeting, Modi said India remained committed to strengthening its longstanding friendship with Iran across different sectors.

“We want to expand and diversify our trade basket in the times to come,” Modi said in a post following the talks. The two leaders also discussed the regional security situation.

Modi reiterated India's position that disputes should be addressed through dialogue and diplomacy and stressed the importance of protecting civilians, commercial vessels and seafarers.

Freedom of navigation and commerce was another key part of India's message, particularly as continued instability around the Persian Gulf and Strait of Hormuz threatens shipping and energy supplies. This was their first face-to-face meeting since the latest West Asia conflict began, although Modi and Pezeshkian had remained in contact by telephone.

What Did Marco Rubio Say About the Modi-Pezeshkian Meeting?

The Trump administration responded after Marco Rubio was asked directly about the meeting during an interview with The Brian Kilmeade Show on Fox News Radio. The interviewer suggested that India and Iran appeared to be setting up a trade arrangement. Rubio pushed back.

“Well, I don't think there's a trade deal between India and Iran,” he said, while noting that countries around the world maintain their own foreign policies and communicate with Tehran.

That part of his answer appeared to lower the temperature around the Modi-Pezeshkian meeting. But Rubio then drew a clear line around sanctions. He said Washington does not want other countries helping Iran establish mechanisms that allow it to generate revenue while circumventing American restrictions. If countries choose to do so, he warned, the United States could sanction them as well. So Washington's message was not that India Iran trade itself is prohibited. Rather, Rubio distinguished between maintaining diplomatic or commercial contact with Tehran and helping Iran bypass sanctions.

Modi Did Talk About Expanding India-Iran Trade

There is another important distinction. Rubio said he did not believe India and Iran were negotiating a formal trade deal. That does not mean trade was absent from the Modi-Pezeshkian talks. India's own public account makes clear that it was discussed. Modi specifically said New Delhi wants to expand and diversify its trade basket with Iran, while both leaders reiterated their desire to strengthen bilateral cooperation across different sectors.

Those two statements are not necessarily contradictory. Countries can discuss increasing bilateral trade without negotiating a new free-trade agreement or another formally structured “trade deal”. Rubio's comments therefore appear to reject the suggestion that a major new agreement was being negotiated rather than deny that economic cooperation was discussed at all.

Chabahar Port Makes US Sanctions Particularly Important for India

The biggest unresolved issue in India Iran relations remains Chabahar Port. India has invested strategically in the Shahid Beheshti terminal at Chabahar because the port gives New Delhi access to Afghanistan and Central Asia without depending on routes through Pakistan. India and Iran signed a 10-year operating agreement for the terminal in May 2024.

But the sanctions environment has since changed dramatically. The United States withdrew the broader Chabahar sanctions exemption in 2025 before subsequently giving India a six-month conditional exemption, allowing Indian activities to continue temporarily.

That exemption expired on April 26, 2026. As a result, the claim that India currently enjoys an active American carve-out for the port is no longer accurate. Foreign Secretary Vikram Misri said during the Bishkek visit that India remains in discussions with stakeholders to find a “sustainable way forward” for its involvement with Chabahar. New Delhi does not want to abandon a project in which it has invested strategically and financially. But continuing under the old arrangement has become harder because of US sanctions and the wider West Asia conflict.

Was Chabahar Discussed by Modi and Pezeshkian?

This is where the public record needs to be handled carefully. Chabahar is clearly one of the biggest strategic issues connecting India and Iran. However, the publicly available Indian readout of the latest meeting focuses on bilateral cooperation, expansion of trade, West Asia, peace, freedom of navigation and the safety of civilians and seafarers. It does not publicly confirm a new Chabahar agreement.

Nor does it announce a new arrangement designed to avoid American sanctions. So it would be premature to interpret the meeting as producing a Chabahar “deal”. India is separately working through the future of the port with stakeholders, including amid discussions linked to Washington's sanctions regime.

An Expanding Trade Basket Is Not the Same as a Sanctions-Busting Deal

That distinction is at the heart of the latest controversy. PM Modi can tell Masoud Pezeshkian that India wants greater commercial engagement. Iran can seek stronger economic relations with India. And Washington can simultaneously warn both governments that transactions falling under American sanctions could trigger penalties. All three positions can exist at the same time. The issue is not simply whether India trades with Iran.

The critical questions are what is traded, which companies and financial institutions are involved, how payments are made and whether any transaction involves sanctioned Iranian entities or activities. That is why Rubio's choice of words matters. He did not accuse India of violating sanctions. He said he did not believe there was a trade deal and then reiterated the consequences for any country that helps Tehran circumvent American restrictions.

Why India Cannot Simply Walk Away From Iran

Despite American pressure, Iran remains strategically important for New Delhi. Chabahar provides a route towards Afghanistan and Central Asia. Iran sits alongside one of the world's most important energy and shipping corridors. And instability around the Strait of Hormuz can quickly affect Indian fuel costs, inflation and financial markets.

TUI has already reported how Iran-linked geopolitical tensions and rising crude prices have weighed on the Indian stock market, while the threat to shipping through Hormuz has become an increasingly important concern for India. The Modi government therefore has incentives to keep diplomatic channels with Tehran open even when Washington wants Iran economically isolated.

That is not new. What has changed is the difficulty of maintaining that balance as the Trump administration tightens its sanctions regime.

What Happens Next for India-Iran Relations?

The next development to watch is not necessarily another summit photograph. It is what happens to Chabahar and broader India Iran trade. India has publicly stated that it wants to expand its trade relationship with Iran. At the same time, Washington has made clear that it will scrutinise efforts that could allow Tehran to escape financial restrictions.

New Delhi must therefore find space between those two positions.

For now, the Modi-Pezeshkian meeting produced a commitment to stronger ties and wider trade—not an announced new trade agreement. And Rubio's message was equally specific: