The country’s largest state-owned refiner plans to acquire its own ships as freight costs surge due to the Iran conflict
India’s largest state-owned oil refiner, Indian Oil Corporation (IOC), is looking to buy its own crude oil and cooking gas tankers as freight costs continue to climb because of the Middle East conflict.
Having its own shipping capacity will help IOC have more control over its supply chain, in addition to keeping transportation costs lower as energy prices remain elevated.
The company currently has three crude oil carriers and nine liquefied petroleum gas (LPG) vessels on long-term charter. Transporting crude under these arrangements costs around $2-2.50 per barrel, compared with spot-market freight rates of 8-10, IOC finance director Anuj Jain said in an earnings call on October 31.
IOC secured board approval for buying the vessels and issued tenders for them months ago. However, it has not disclosed the number of ships to be acquired, their cost, or a delivery timeline. It is also exploring getting the ships built under the government’s Make-in-India initiative.
LPG freight costs have also surged to 160-180 per metric ton in the spot market, from around $40 earlier. As is the case with crude, existing charter arrangements have helped IOC secure supplies and limit transportation expenses during the crisis.
The US-Iran conflict has disrupted commercial shipping around the Strait of Hormuz, pushing up freight rates and war-risk insurance costs. The strategic waterway, which connects the Persian Gulf with the Gulf of Oman, handled around a fifth of global oil and gas shipments before the conflict.
India imports nearly 90% of its crude oil requirements, with around 30% currently passing through the strait. The route also handles most of the country’s LPG imports, making shipping disruptions a major concern for Indian refiners.
Indian Oil has also diversified crude procurement amid the disruptions. Russia accounted for 55% of its crude purchases during the first half of the current financial year, while Middle Eastern supplies contributed 24%.
The company has increased its crude oil inventories to around 39 days of cover, compared with the usual 33-35 days, while maintaining refinery operations despite the supply disruptions.
