US Weighs Purchase of Chagos Islands, Telegraph Reports

According to a June 7, 2026, report in The Telegraph, a US government body is actively considering a plan to purchase the Chagos Archipelago from the United Kingdom. The reported price for the strategic island chain is $600 million. This potential transaction is centered on the UK-allied United States purchasing the disputed territory from the UK itself. The development has immediate implications for sovereignty claims, international law, and naval power projection across the Indian Ocean.

Context — why this matters now

The United Kingdom has exercised sovereignty over the Chagos Archipelago since 1814. In 1965, Britain detached the islands from the colony of Mauritius to form the British Indian Ocean Territory. The UK then leased Diego Garcia, the largest atoll, to the United States for a military base established in 1971. The base has since become a critical node for US power projection, supporting B-52 bomber missions and naval operations across the Middle East and Asia. In 2019, the International Court of Justice ruled the UK's administration of Chagos was unlawful and should end. The UN General Assembly followed with a non-binding resolution supporting Mauritius's claim to sovereignty.

The current macro backdrop features heightened great power competition. China has deepened its maritime presence through its "String of Pearls" strategy, including the Hambantota Port in Sri Lanka and a military base in Djibouti. The US Navy's Indo-Pacific Command has identified freedom of navigation and countering Chinese naval expansion as key priorities. The reported US purchase consideration is a direct catalyst aimed at preempting a potential Mauritian assumption of sovereignty. Such a transition could complicate the long-term status of the Diego Garcia base under a new bilateral agreement.

Data — what the numbers show

The proposed $600 million purchase price would be a direct financial transaction between sovereign states. Diego Garcia alone hosts over 1,700 US military personnel and contractors. The base facilitates operations for long-range bombers like the B-52H, which has an unrefueled combat range of 8,800 miles. The atoll's position is strategically central, lying approximately 1,000 miles south of India and 2,000 miles east of Africa.

A comparison of regional US military facilities highlights Diego Garcia's unique value:

Facility	Country	Primary Function	Strategic Focus
Diego Garcia	UK (US-leased)	Logistics, Bomber Base	Indian Ocean, Global Strike
Camp Lemonnier	Djibouti	Counterterrorism	Horn of Africa
Naval Support Activity Bahrain	Bahrain	5th Fleet HQ	Persian Gulf

Diego Garcia's value is amplified by its isolation and security, unlike bases in politically volatile host nations. The US investment in the base exceeds $3 billion since the 1970s. Control of the archipelago guarantees uninterrupted access to 54,400 square kilometers of exclusive economic zone, rich in fishing and potential seabed resources.

Analysis — what it means for markets / sectors / tickers

The primary second-order effect is on defense and infrastructure contractors with long-standing Diego Garcia support contracts. Companies like KBR (KBR) and Amentum, which provide base operations support, would see contract certainty extended for decades. Naval shipbuilders like General Dynamics (GD) and Huntington Ingalls (HII) benefit from a secured forward operating location for the US Navy's Indo-Pacific fleet.

Maritime and shipping sectors face mixed implications. A permanent US sovereign hold reduces political risk for vessels transiting nearby chokepoints like the Strait of Malacca and the Bab-el-Mandeb. This could lower risk premiums for shipping companies like Maersk (AMKBY). Conversely, any escalation in regional tensions following the purchase could increase insurance costs for cargo traversing the Indian Ocean. The main counter-argument is that a cash purchase may not resolve the underlying legal dispute, potentially inviting continued international condemnation and challenges from Mauritius and its allies.

Positioning data shows institutional investors are already increasing exposure to US defense primes. Flow analysis indicates net buying in the iShares U.S. Aerospace & Defense ETF (ITA) over the past month, coinciding with increased geopolitical volatility forecasts. Sovereign wealth funds with heavy commodity exposure are monitoring the situation for impacts on Indian Ocean trade routes.

Outlook — what to watch next

The immediate catalyst is the UK government's formal response to the reported proposal, expected before the summer parliamentary recess on July 23, 2026. The next trigger is the Commonwealth Heads of Government Meeting in October 2026, where Mauritius will lobby member states. Legal observers are watching for any filing by Mauritius at the International Tribunal for the Law of the Sea contesting the proposed sale's legality.

Key levels to monitor include the USD/GBP exchange rate, as a large dollar-denominated transaction could provide sterling support. The yield on UK 10-year gilts will reflect any perceived improvement in the UK's fiscal position from a $600 million windfall. In commodity markets, watch the Baltic Dry Index for shifts in Indian Ocean shipping costs. If the purchase proceeds, US defense budget allocations for Indian Ocean infrastructure will be detailed in the FY2028 budget request, released in February 2027.

Frequently Asked Questions

What is the legal status of the Chagos Islands?

The UK claims sovereignty but the International Court of Justice issued an advisory opinion in 2019 stating the UK's decolonization of Mauritius was not lawfully completed and the UK should end its administration. The UN General Assembly affirmed this. The UK does not recognize the ICJ opinion as legally binding, creating a contested sovereignty situation. The proposed US purchase from the UK would be a bilateral treaty, not a resolution of the international legal dispute.

How important is Diego Garcia for US military operations?

Diego Garcia is a linchpin for US power projection. It served as a launch point for B-52 missions during the wars in Afghanistan and Iraq. The base provides critical logistics, prepositioned equipment, and intelligence capabilities. Its geographic position allows the US to monitor maritime traffic across the Indian Ocean and respond rapidly to crises from the Middle East to the South China Sea without relying on permissions from potentially neutral or hostile coastal states.