Indian Oil Corporation (IOC) plans to buy its own crude oil and liquefied petroleum gas carriers as freight costs rise sharply and disruptions around the Strait of Hormuz increase the risks of relying on the spot shipping market.
IOC’s board has approved the purchase of a few vessels, and tenders for the proposed acquisitions were issued several months ago, the company’s director of finance, Anuj Jain, said during its second-quarter earnings call. The state-owned refiner is also examining whether some vessels can be built in India under the government’s Make in India initiative.
The proposed purchases would mark a shift in IOC’s traditional shipping model. The company has generally relied on time-chartered and voyage-chartered vessels to move crude oil and LPG to its refineries and markets. It is now considering a combination of vessel ownership, improved chartering arrangements and domestic shipbuilding.
Jain said oil-sector companies needed to focus more on shipping as geopolitical tensions in the Middle East disrupted commercial movement near the Strait of Hormuz. The disruptions have pushed up freight rates and war-risk insurance costs, increasing the importance of controlling transportation capacity alongside securing crude supplies.
IOC currently has three crude oil carriers and nine LPG vessels under time-charter arrangements. These vessels have helped the company contain transportation expenses during the current crisis, Jain said. The difference between chartered rates and spot-market prices has nevertheless widened significantly.
IOC pays about $2-2.50 per barrel for its time-chartered crude carriers, compared with spot-market rates of up to $8-10 per barrel. LPG freight rates that would normally be around $40 per tonne have risen to $160-180 per tonne in the spot market, according to Jain.
The company is also changing the geographical mix of its crude purchases. Russia supplied 55% of IOC’s crude requirements in the first half of the current financial year, while Middle Eastern countries accounted for 24% and Africa contributed about 10%. Brazil supplied 7%, the United States accounted for 2-5% and Venezuela contributed 3-4%, Jain said.
Spot purchases made up about 87% of IOC’s crude sourcing in the first half of FY27, compared with approximately 50% in the previous financial year. The company said it continued to negotiate discounts against benchmark prices despite volatile international markets and was purchasing Russian crude at what it described as optimal prices. It was also processing Venezuelan crude.
IOC has increased inventories as it manages the supply-chain pressure. Its crude oil inventory has risen to about 39 days from the usual 33-35 days. The company was holding 20 days of LPG inventory and 23-25 days of petrol and diesel stocks, providing additional coverage against transportation or procurement disruptions.
The logistics strategy comes as oil prices have also risen. Jain said Indian basket crude, which averaged about $65-70 per barrel in February, remained above $100 for much of the first quarter and averaged approximately $120 per barrel in October.
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 corresponding period last year. The company attributed the improvement to inventory gains and stronger performance across several businesses. Its gross refining margin was $18.52 per barrel, excluding the impact of the special additional excise duty, while its inventory gain stood at Rs 6,948 crore.
IOC said geopolitical developments remained a key concern because of their effect on crude procurement, freight costs and marketing margins. The company’s next steps are the completion of vessel-acquisition processes and continued evaluation of shipbuilding opportunities in India.
