Indian Oil Corporation to Acquire Crude and LPG Vessels Amid Shipping Risks

Indian Oil Corporation (IOC), the country's largest oil refiner, is set to purchase its own crude oil and liquefied petroleum gas (LPG) carriers as part of a strategic move to strengthen its control over energy transportation. This decision comes in response to increased disruptions and rising costs in shipping routes near the Strait of Hormuz, a crucial passage for global oil supplies.

During the company’s second-quarter earnings call, Director of Finance Anuj Jain revealed that the IOC board has already approved acquiring several vessels, with tenders having been issued several months earlier. "The country needs oil sector companies to focus more on the shipping area now," Jain stated. Additionally, IOC is evaluating the possibility of constructing ships domestically under the government’s Make in India initiative, aiming to bolster local shipbuilding capabilities.

This initiative marks a shift from IOC’s traditional reliance on a combination of time-chartered and voyage-chartered vessels. The company is now considering three strategies to meet its shipping needs: optimizing existing charter contracts, owning vessels outright, and supporting indigenous shipbuilding efforts.

Geopolitical tensions in West Asia, especially near the Strait of Hormuz, have caused considerable instability in maritime transport, which has led to increased freight charges and higher war-risk insurance premiums. These factors have made reliable shipping capacity a critical priority for companies like IOC that depend heavily on overseas crude imports.

Currently, IOC operates three crude oil vessels and nine LPG vessels under time-charter agreements, which Jain noted have helped the company achieve significant cost savings during the ongoing crisis. For instance, IOC’s time-chartered crude carriers incur costs of approximately $2 to $2.50 per barrel, a stark contrast to spot-market rates, which have surged as high as $8 to $10 per barrel. Similarly, LPG freight rates, typically around $40 per tonne, have escalated to between $160 and $180 per tonne on the spot market.

IOC’s shipping strategy is part of a broader effort to diversify its crude oil procurement sources and reduce vulnerability to supply interruptions. During the first half of the current financial year, the company sourced 55 percent of its crude from Russia, with 24 percent coming from Middle Eastern nations. Other suppliers included Africa at 10 percent, Brazil at 7 percent, the United States between 2 and 5 percent, and Venezuela contributing 3 to 4 percent.

The company has also increased its dependence on spot market purchases, which accounted for about 87 percent of crude sourcing in the first half of the financial year 2027, compared to roughly 50 percent the previous year. Jain noted that despite volatility in global crude prices, IOC managed to negotiate favorable discounts relative to benchmark prices. The premium or discount compared to benchmark crude fluctuated between a $5 per barrel discount and a $12 per barrel premium during the September quarter, an improvement over the previous quarter’s range of zero to $18 per barrel.

IOC continues to procure Russian crude at prices it considers optimal and is processing Venezuelan crude as part of its diversified sourcing strategy. This approach comes amid a sharp rise in oil prices following heightened US-Iran tensions in late February. Indian basket crude prices averaged $65 to $70 per barrel in February but surged above $100 for much of the first quarter, reaching an average of approximately $120 per barrel in October.

Despite these supply chain challenges, IOC has maintained refinery operations at near-optimal levels. It increased its crude inventory to about 39 days’ supply, up from the usual 33 to 35 days. The company also holds around 20 days’ inventory of LPG and 23 to 25 days’ stocks of petrol and diesel, helping to cushion against potential disruptions.

Financially, IOC reported a net profit of Rs 21,630 crore in the September quarter, a sharp improvement from a loss of Rs 2,661 crore in the previous quarter and up from Rs 7,610 crore in the same period last year. The company attributed this turnaround to inventory gains and better performance across multiple business segments. It recorded a gross refining margin of $18.52 per barrel, excluding the special additional excise duty, and an inventory gain of Rs 6,948 crore for the quarter.

However, Jain emphasized that ongoing geopolitical developments remain a significant source of uncertainty, especially given their impact on crude procurement costs, freight rates, and marketing margins. The planned acquisition of vessels and the push for domestic shipbuilding highlight a broader effort within India’s oil sector to reinforce supply chain stability as the country continues to rely heavily on imported crude and international shipping routes.