Indian Oil to Reduce West Asia Crude Imports Amid Iran Conflict

Indian Oil Corporation (IOC), the largest refining company in India, is set to decrease its crude oil purchases from West Asian countries under annual contracts for the financial year 2027/28. This decision is driven by ongoing uncertainties caused by the Iran conflict, now in its eighth month, which has disrupted oil supplies from the region.

Historically, Indian refiners have depended heavily on West Asia, sourcing over 50% of their annual crude intake from the area. The region is known for producing heavier, high-sulphur crude grades that suit the configurations of many Indian refineries. Additionally, the geographic closeness of West Asian producers has made logistics and transportation relatively efficient and cost-effective.

IOC had initially intended to procure around 47% of its crude imports through annual free-on-board (FOB) agreements with West Asian suppliers for the year ending March 2027. However, a source familiar with the matter revealed that the company will now reduce these volumes slightly. The source asked to remain anonymous due to the sensitive nature of the situation.

The conflict involving Iran has severely affected the flow of oil, compelling several Asian refiners to suspend or reconsider their annual contracts with Gulf suppliers. On top of direct supply disruptions, attacks on vessels passing through the strategically important Strait of Hormuz have led to limited shipping availability and sharply increased freight costs, reaching near-record levels.

In response to these challenges, refiners have increasingly turned to spot market purchases. Some oil producers have begun offering crude on a delivered basis, absorbing a portion of the higher freight charges to attract buyers and maintain their market positions. This shift reflects a broader trend among buyers seeking flexibility and better pricing amid supply uncertainties.

In recent months, Indian refiners, including IOC, have purchased Iraqi crude oil at prices discounted relative to the Dubai benchmark. These purchases were still arranged on a FOB basis, indicating a willingness to adapt procurement strategies based on market conditions and geopolitics.

Earlier in the conflict period, Indian refiners raised their intake of Russian crude oil to offset the shortfall from West Asia. However, the future volume of Russian oil imports might decline as West Asian producers attempt to regain market share by offering competitive prices and freight terms. Additionally, as some supplies begin moving again through the Strait of Hormuz, the logistics situation could improve.

Aside from crude procurement adjustments, IOC has recently explored expanding its shipping capacity. In July, it floated a tender to acquire stakes in at least two very large gas carriers to secure transportation for its liquefied natural gas (LNG) needs. Yet, the plan to finalize this tender has been put on hold due to a significant rise in vessel costs, which have nearly doubled to around $150 million for a decade-old ship since the tender was issued.

The evolving dynamics of crude sourcing and shipping reflect the broader challenges faced by refiners in Asia amid geopolitical tensions and market volatility. Indian Oil’s move to reduce reliance on West Asian oil under long-term contracts demonstrates a strategic shift towards greater flexibility in procurement and risk management.

West Asia remains a crucial supplier to the global oil market, but ongoing conflicts and maritime security threats continue to complicate trade flows. Refiners worldwide are adapting by balancing annual contracts with spot purchases and negotiating more favorable freight arrangements. For Indian Oil and others, navigating these changes will be essential to maintaining steady crude supplies and meeting domestic energy demand.