IndianOil plans to buy crude, LPG carriers as Hormuz crisis drives up freight costs

State-owned Indian Oil Corporation (IOC) is planning to acquire crude oil and liquefied petroleum gas (LPG) carriers of its own as disruptions to shipping around the Strait of Hormuz and a sharp increase in freight costs prompt India's largest oil refiner to strengthen control over its energy supply chain.

The company's board has already approved the purchase of a few vessels, and tenders were issued several months ago, IOC Director (Finance) Anuj Jain said during the company's second-quarter earnings call.

"The country needs oil sector companies to focus more on the shipping area now," Jain said, adding that IOC was also exploring the possibility of building vessels in India under the government's Make in India initiative.

The proposed acquisitions mark a potential shift in IOC's shipping strategy, which has traditionally depended on a combination of time-chartered and voyage-chartered vessels to transport crude oil and petroleum products.

The company is now examining three approaches to strengthen its shipping operations: optimising existing charter arrangements, acquiring vessels and supporting domestic shipbuilding.

𝗛𝗼𝗿𝗺𝘂𝘇 𝗰𝗿𝗶𝘀𝗶𝘀 𝗿𝗮𝗶𝘀𝗲𝘀 𝗰𝗼𝘀𝘁𝘀

The importance of securing shipping capacity has increased amid geopolitical tensions in West Asia, which have disrupted commercial vessel movements near the Strait of Hormuz and pushed up freight rates and war-risk insurance costs.

The strait is a crucial maritime route for global oil and gas shipments, making disruptions particularly significant for India, which relies heavily on imported crude oil.

IOC currently operates three crude oil carriers and nine LPG vessels under time-charter arrangements.

According to Jain, these contracts have helped the company avoid substantial additional expenditure during the current shipping crisis.

The company's time-chartered crude carriers cost approximately $2-2.50 per barrel, compared with spot-market freight rates that have climbed to as much as $8-10 per barrel.

LPG shipping costs have witnessed an even sharper increase.

Freight rates that would ordinarily be around $40 per tonne have surged to $160-180 per tonne in the spot market, representing a fourfold increase at the upper end.

Jain said the existing charter arrangements had provided significant savings, highlighting the financial advantages of securing shipping capacity during periods of geopolitical uncertainty.

Owning vessels could offer IOC greater flexibility in managing transportation schedules, reducing dependence on volatile spot freight markets and ensuring continuity of supplies during future disruptions.

𝗥𝘂𝘀𝘀𝗶𝗮 𝗮𝗰𝗰𝗼𝘂𝗻𝘁𝘀 𝗳𝗼𝗿 𝟱𝟱% 𝗼𝗳 𝗰𝗿𝘂𝗱𝗲

The shipping initiative forms part of a broader strategy to diversify crude oil procurement and minimise exposure to supply disruptions.

Jain said Russia accounted for 55 per cent of IOC's crude oil requirements during the first half of the current financial year, while supplies from the Middle East contributed 24 per cent.

African countries accounted for approximately 10 per cent of procurement, while Brazil contributed around 7 per cent.

The United States accounted for 2-5 per cent and Venezuela for 3-4 per cent, according to the figures shared during the earnings call.

IOC has continued purchasing Russian crude at what the company described as optimal prices and has also been processing Venezuelan crude.

The diversification strategy is intended to provide greater flexibility in sourcing oil from different regions, particularly when geopolitical developments affect shipping routes or the availability of particular crude grades.

𝗦𝗽𝗼𝘁 𝗰𝗿𝘂𝗱𝗲 𝗽𝘂𝗿𝗰𝗵𝗮𝘀𝗲𝘀 𝗿𝗶𝘀𝗲

IOC has also substantially increased its reliance on spot-market purchases.

Spot imports accounted for approximately 87 per cent of the company's crude sourcing during the first half of FY27, compared with around 50 per cent in the previous financial year.

The shift has allowed IOC to respond more quickly to changes in international crude prices and negotiate purchases based on prevailing market conditions.

Jain said the company had secured discounts against benchmark crude prices even during periods of heightened volatility.

During the September quarter, the premium or discount paid over benchmark crude ranged from a discount of $5 per barrel to a premium of $12 per barrel.

In the preceding quarter, the corresponding range had been between zero and a premium of $18 per barrel.

The figures indicate that IOC was able to negotiate more favourable terms for some cargoes despite the disruption in international oil markets.

𝗖𝗿𝘂𝗱𝗲 𝗽𝗿𝗶𝗰𝗲𝘀 𝘀𝘂𝗿𝗴𝗲 𝗽𝗮𝘀𝘁 $𝟭𝟬𝟬

The company's procurement strategy has been shaped by a sharp increase in global oil prices following the escalation of hostilities between the United States and Iran towards the end of February.

According to Jain, the Indian basket of crude oil, which averaged approximately $65-70 per barrel in February, remained above $100 for much of the first quarter of the current financial year.

Prices increased further in subsequent months, with the Indian crude basket averaging around $120 per barrel in October.

The rise in crude prices, combined with higher shipping and insurance costs, has increased the financial pressures associated with importing petroleum.

For refiners, such volatility affects working capital requirements, inventory valuations, refining economics and marketing margins.

Jain cautioned that geopolitical developments remained a major source of uncertainty for IOC, particularly because of their impact on crude procurement, freight expenditure and downstream profitability.

𝗜𝗻𝘃𝗲𝗻𝘁𝗼𝗿𝗶𝗲𝘀 𝗿𝗮𝗶𝘀𝗲𝗱 𝘁𝗼 𝟯𝟵 𝗱𝗮𝘆𝘀

Despite the disruptions, IOC said it had maintained refinery operations at optimal levels while increasing inventories to strengthen supply security.

The company has raised its crude oil inventory to approximately 39 days of requirements, compared with its normal inventory level of 33-35 days.

It is also maintaining around 20 days of LPG inventory and 23-25 days of petrol and diesel stocks.

The additional inventories are intended to provide a buffer against potential interruptions in crude deliveries and petroleum product supplies.

Higher inventories can help refiners maintain operations when shipments are delayed, although they also increase the amount of capital tied up in stocks.

The company's emphasis on shipping capacity and inventory management reflects its efforts to reduce operational vulnerabilities during a period of heightened uncertainty in international energy markets.

𝗣𝗿𝗼𝗳𝗶𝘁 𝘀𝘂𝗿𝗴𝗲𝘀 𝘁𝗼 𝗥𝘀 𝟮𝟭,𝟲𝟯𝟬 𝗰𝗿𝗼𝗿𝗲

IOC reported a net profit of Rs 21,630 crore for the September quarter, marking a sharp turnaround from a loss of Rs 2,661 crore in the preceding quarter.

The company had posted a profit of Rs 7,610 crore in the corresponding quarter of the previous financial year.

IOC attributed the improvement to inventory gains and stronger performance across several business segments.

Its gross refining margin stood at $18.52 per barrel during the quarter, excluding the impact of the special additional excise duty.

The company also recorded an inventory gain of Rs 6,948 crore, which contributed significantly to its quarterly profitability.

The strong financial performance came despite the volatility in international crude prices and the increase in shipping-related expenditure.

However, the management indicated that future profitability would remain sensitive to changes in global energy markets and the geopolitical situation.

𝗗𝗼𝗺𝗲𝘀𝘁𝗶𝗰 𝘀𝗵𝗶𝗽𝗯𝘂𝗶𝗹𝗱𝗶𝗻𝗴 𝗶𝗻 𝗳𝗼𝗰𝘂𝘀

IOC's interest in acquiring vessels and exploring ship construction in India could also support the government's broader objective of strengthening domestic maritime manufacturing.

Under the Make in India initiative, the government has encouraged greater domestic participation in shipbuilding and other strategically important industries.

For IOC, developing a fleet of owned vessels could reduce its long-term exposure to fluctuations in charter rates while providing greater control over crude oil and LPG transportation.

However, vessel ownership would also involve substantial capital expenditure, maintenance costs and operational responsibilities.

The company has not disclosed the number, specifications or estimated investment required for the proposed acquisitions beyond confirming that its board has approved the purchase of a few vessels.

The initiative nevertheless signals a change in how India's largest oil refiner is approaching energy logistics.

With global shipping routes increasingly vulnerable to geopolitical disruptions, IOC is seeking to combine diversified crude sourcing, larger inventories and more secure shipping arrangements to maintain uninterrupted supplies.

The proposed investments could become an important part of the company's longer-term strategy to strengthen supply-chain resilience and reduce dependence on overseas shipping markets.