IOC to buy crude, LPG ships as West Asia crisis exposes shipping risks

New Delhi: State-owned Indian Oil Corporation plans to acquire crude oil and liquefied petroleum gas carriers of its own as disruptions to shipping around the Strait of Hormuz and soaring 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, Director of Finance Anuj Jain said during its second-quarter earnings call.

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"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 ships in India under the government's Make in India initiative.

The move marks a potential shift in the company's shipping strategy, which has traditionally relied on a mix of time-charter and voyage-chartered vessels. IOC is now examining three approaches: optimising existing charter arrangements, owning ships and supporting domestic shipbuilding.

The importance of securing shipping capacity has increased as geopolitical tensions in West Asia disrupt commercial movement near the Strait of Hormuz, pushing up freight rates and war-risk insurance costs.

IOC currently has three crude oil vessels and nine LPG vessels on time charter. These arrangements have provided significant cost savings during the current crisis, Jain said.

The company's time-chartered crude carriers cost around USD 2-2.50 per barrel, compared to spot-market rates of as much as USD 8-10 per barrel.

LPG freight rates, which would normally be around USD 40 per tonne, have risen to USD 160-180 per tonne in the spot market, he said.

The shipping strategy is part of a broader effort to diversify crude procurement and reduce exposure to supply disruptions. IOC sourced 55 per cent of its crude requirements from Russia during the first half of the current financial year, while Middle Eastern supplies accounted for 24 per cent, Jain said.

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Africa contributed about 10 per cent, Brazil 7 per cent, the United States 2-5 per cent and Venezuela 3-4 per cent.

The company has also substantially increased its reliance on spot purchases. Spot imports accounted for about 87 per cent of crude sourcing in the first half of FY27, compared to around 50 per cent in the previous financial year.

Jain said the company had been able to negotiate discounts against benchmark prices even as global crude markets remained volatile. The premium or discount paid over benchmark crude during the September quarter ranged from a discount of USD 5 per barrel to a premium of USD 12 per barrel, compared to a range of zero to USD 18 per barrel in the preceding quarter.

IOC has continued to buy Russian crude at what it described as optimal prices and has also been processing Venezuelan crude.

The company's procurement diversification comes against the backdrop of a sharp rise in oil prices following the escalation of US-Iran hostilities towards the end of February.

Indian basket crude, which averaged around USD 65-70 per barrel in February, remained above USD 100 for much of the first quarter and averaged about USD 120 per barrel in October, Jain said.

Despite the supply-chain disruptions, IOC said it had maintained refinery operations at optimal levels and increased crude inventories to about 39 days, from its usual 33-35 days. It was also holding 20 days of LPG inventory and 23-25 days of petrol and diesel stocks.

IOC reported a net profit of Rs 21,630 crore in the September quarter, compared with a loss of Rs 2,661 crore in the preceding quarter and a profit of Rs 7,610 crore in the year-earlier period. The company said inventory gains and improved performance across several businesses contributed to its profitability.

It recorded a gross refining margin of USD 18.52 per barrel, excluding the impact of the special additional excise duty, and an inventory gain of USD 6,948 crore during the quarter.

Jain cautioned that geopolitical developments remained a key source of uncertainty for the company, particularly because of their impact on crude procurement, freight and marketing margins.

The proposed vessel purchases and domestic shipbuilding initiative reflect a wider effort by Indian oil companies to strengthen logistics resilience as India remains heavily dependent on imported crude and overseas shipping routes.