The cost of transporting crude oil to India has surged by as much as 150 per cent on some routes as the escalating conflict in West Asia disrupts shipping and forces tanker operators to demand a substantial risk premium. The sharp increase threatens to add another layer of expense to India’s energy imports at a time when elevated crude prices and uncertainty surrounding the Strait of Hormuz are already putting pressure on refiners and the broader economy.
Freight rates for tankers carrying crude to India have climbed rapidly as shipowners factor in heightened security risks, longer waiting periods and uncertainty over vessel movements through the region. The impact is particularly important for India because the country imports more than 88 per cent of the crude oil it consumes and remains heavily dependent on supplies originating in West Asia. Even where oil itself remains available, substantially higher transportation costs can increase the landed price paid by Indian refiners.
Freight rates soar
The increase in tanker charges reflects the growing risk attached to operating vessels in and around West Asian waters. Shipowners and operators are demanding higher rates as military tensions raise fears of attacks, disruption to maritime traffic and potential damage to vessels. Insurance costs can also rise sharply when ships enter areas classified as high risk, further increasing the expense of moving crude.
The situation is particularly sensitive around the Strait of Hormuz, the narrow waterway connecting the Persian Gulf with the Arabian Sea. A significant share of the world’s oil and liquefied natural gas trade passes through the strait, making any disruption there capable of affecting energy prices and shipping costs globally. India receives substantial crude supplies from producers in the Gulf, leaving its refiners exposed to developments along the route.
India faces double hit
The freight surge comes as crude prices themselves remain elevated because of the conflict, creating the possibility of a double impact for India — paying more for oil and then paying substantially more to bring it home. Higher landed crude costs can squeeze refinery margins and eventually increase pressure on domestic fuel prices, inflation and the country’s import bill if elevated rates persist.
Expensive oil has broader economic consequences because fuel feeds into transportation, manufacturing, agriculture and logistics costs. A sustained increase can also widen India’s current account deficit and increase demand for dollars to finance energy imports, potentially adding pressure on the rupee.
Alternative routes limited
Indian refiners have diversified crude sourcing considerably in recent years, including purchasing larger quantities from Russia and suppliers outside West Asia. However, diversification cannot completely shield the country from a major disruption in Gulf shipping. India continues to buy significant volumes from Iraq, Saudi Arabia, the UAE and other regional producers, while developments in West Asia can influence tanker markets far beyond the immediate conflict zone.
Longer voyages from alternative suppliers can themselves carry higher freight costs, while a rush by buyers to secure vessels outside affected routes could tighten tanker availability and push global shipping rates higher. Refiners therefore have limited ability to escape the impact simply by changing suppliers.
Hormuz remains key
For India, the immediate concern is whether the spike in tanker rates proves temporary or becomes part of a prolonged disruption to energy trade. Freight markets can react rapidly to geopolitical developments, meaning costs could ease if security conditions improve. Any further escalation around the Strait of Hormuz, however, could send rates still higher and potentially threaten physical supplies.
The 150 per cent surge is consequently an early warning of how a distant conflict can quickly reach the Indian economy without a single barrel of crude being lost. India’s vulnerability is not limited to the international price of oil; it also extends to the ships, insurance and maritime corridors required to deliver that oil. As West Asia becomes increasingly volatile, keeping those routes open and affordable is becoming almost as important as securing the crude itself.