Indian Oil plans to buy ships as crude freight costs hit $10 a barrel amid Iran-US tensions

Indian Oil Corporation (IOC), India’s largest oil refiner, is planning to acquire its own Crude Oil and liquefied petroleum gas (LPG) carriers as geopolitical tensions involving Iran and the United States disrupt shipping routes and push freight costs higher. The company’s board has approved the purchase of several vessels, while IOC is also exploring opportunities to build ships domestically under the government’s Make in India initiative.

The move comes as disruptions around the strategically important Strait of Hormuz increase shipping expenses, war-risk insurance premiums and uncertainty over energy supplies. With spot-market crude freight rates reaching $8–10 per barrel, compared with around $2–2.50 for IOC’s time-chartered crude carriers, owning vessels could help the company manage transportation costs and strengthen supply-chain security.

Key Highlights

• IOC’s board has approved plans to purchase crude oil and LPG carriers.
• Spot-market crude freight rates have climbed to $8–10 per barrel amid shipping disruptions.
• IOC is exploring domestic shipbuilding opportunities under the Make in India initiative.
• The company sourced 55% of its crude from Russia in the first half of FY27, while spot purchases accounted for around 87% of sourcing.
• IOC reported a September-quarter net profit of Rs 21,630 crore, supported by inventory gains and improved business performance.

Why Indian Oil Plans to Buy Its Own Ships

IOC’s decision to expand its shipping capabilities reflects growing concerns about the cost and reliability of transporting imported energy. India depends heavily on overseas crude supplies, making the availability of vessels and secure shipping routes critical for its oil companies.

Director of Finance Anuj Jain said the company’s board had approved the purchase of a few vessels and tenders had been issued several months earlier. He also stressed that Indian oil-sector companies need to pay greater attention to shipping capacity.

IOC is examining three approaches to strengthen its logistics operations: improving existing charter arrangements, purchasing ships and exploring domestic shipbuilding. This represents a potential shift from its traditional reliance on a combination of time-chartered and voyage-chartered vessels.

Crude Oil Freight Costs Rise to $10 Per Barrel

Shipping disruptions around the Strait of Hormuz have increased the cost of transporting crude oil. Geopolitical tensions in West Asia have affected commercial shipping activity, while higher war-risk insurance costs have added to the financial burden on energy companies.

According to Jain, IOC’s time-chartered crude oil carriers cost approximately $2–2.50 per barrel. In comparison, spot-market freight rates have climbed as high as $8–10 per barrel.

The difference highlights the financial advantage of securing shipping capacity through longer-term arrangements rather than relying entirely on vessels available in the spot market.

LPG transportation costs have also increased significantly. Freight rates that would normally be around $40 per tonne have risen to approximately $160–180 per tonne in the spot market.

These increases have strengthened the case for IOC to secure greater control over its transportation requirements, particularly during periods of international supply-chain disruption.

IOC Already Has 12 Vessels on Time Charter

IOC currently operates three crude oil vessels and nine LPG vessels under time-charter arrangements. Jain said these contracts have helped the company achieve significant cost savings during the ongoing shipping crisis.

Time chartering allows a company to secure the use of a vessel for an agreed period, providing greater cost visibility and access to transportation capacity. However, purchasing ships could offer additional control over logistics and reduce dependence on external shipping arrangements over the longer term.

The company is therefore assessing how vessel ownership can complement its existing charter strategy rather than relying on a single transportation model.

Make in India: IOC Explores Domestic Shipbuilding

Alongside purchasing vessels, IOC is considering the possibility of building ships in India. The initiative would align with the government’s Make in India programme and could support the development of domestic maritime capabilities.

Jain said the company was exploring opportunities in this area as part of its broader shipping strategy. The proposal reflects the importance of developing stronger domestic capabilities for transporting crude oil and LPG.

However, the company has not provided a detailed timeline or specific investment commitment for the proposed shipbuilding initiative in the supplied announcement.

Russia Accounts for 55% of IOC’s Crude Oil Sourcing

IOC is also diversifying its crude procurement to reduce dependence on individual suppliers and shipping routes. During the first half of FY27, Russia accounted for 55% of the company’s crude oil requirements, while Middle Eastern supplies contributed 24%.

Other suppliers included Africa at around 10%, Brazil at 7%, the United States at 2–5% and Venezuela at 3–4%, according to Jain.

The sourcing mix demonstrates the company’s efforts to maintain access to crude from multiple regions amid geopolitical uncertainty. Diversification can help refiners respond to changing prices, availability and transportation risks.

Spot Purchases Account for 87% of Crude Sourcing

IOC has substantially increased its reliance on spot-market crude purchases. Spot imports accounted for approximately 87% of its crude sourcing in the first half of FY27, compared with around 50% in the previous financial year.

Spot purchases allow refiners to respond to changing market conditions and select supplies based on availability and pricing. However, greater dependence on the spot market can also expose companies to sudden changes in crude prices and transportation costs.

Jain said IOC had managed to negotiate discounts against benchmark crude prices despite volatility in international markets. During the September quarter, the premium or discount paid over benchmark crude ranged from a discount of $5 per barrel to a premium of $12 per barrel. In the preceding quarter, the range was from zero to a premium of $18 per barrel.

The company also continued purchasing Russian crude at what it described as optimal prices and processing Venezuelan crude.

Crude Oil Prices Rise Amid Iran-US Tensions

Escalating hostilities involving the United States and Iran have added uncertainty to global energy markets. The disruption has been particularly important for India because of its dependence on imported crude and the strategic role of the Strait of Hormuz in international oil transportation.

Jain said Indian basket crude averaged around $65–70 per barrel in February. Prices remained above $100 per barrel for much of the first quarter and averaged approximately $120 per barrel in October.

Higher crude prices can increase the cost of imports for Indian refiners, while expensive freight and insurance add further pressure. These developments make procurement flexibility, inventory management and secure transportation capacity increasingly important.

IOC Increases Crude and Fuel Inventories to Manage Disruptions

Despite supply-chain challenges, IOC said it had maintained refinery operations at optimal levels and increased its crude oil inventories to around 39 days of consumption.

This was higher than its usual inventory coverage of approximately 33–35 days. The company also held around 20 days of LPG inventory and 23–25 days of petrol and diesel stocks.

Maintaining higher inventories can provide refiners with a buffer against shipping delays and temporary supply interruptions. It can also help ensure that refinery operations and fuel distribution continue during periods of international uncertainty.

IOC Reports Rs 21,630 Crore Net Profit in Q2

IOC reported a net profit of Rs 21,630 crore in the September quarter, marking a significant improvement 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 its improved profitability to inventory gains and stronger performance across several business segments.

IOC recorded a gross refining margin of $18.52 per barrel, excluding the impact of the special additional excise duty. It also reported an inventory gain of Rs 6,948 crore during the quarter.

The strong quarterly performance provides financial context for the company’s proposed investments in shipping capacity and supply-chain resilience.

Geopolitical Risks Remain a Major Concern

Despite the improvement in earnings and efforts to strengthen logistics, IOC continues to face uncertainty from international developments. Jain cautioned that geopolitical conditions remain a major concern because they affect crude procurement, freight expenses and marketing margins.

Any further disruption around key shipping routes could increase transportation costs and complicate the arrival of imported crude. Higher insurance premiums and limited vessel availability could also affect the economics of importing energy.

For India, strengthening shipping capabilities is particularly important because the country relies heavily on overseas suppliers to meet its crude oil requirements.

What IOC’s Shipping Expansion Means for India’s Energy Security

IOC’s proposed vessel purchases and exploration of domestic shipbuilding reflect a broader effort to strengthen India’s energy supply chain. Greater control over shipping capacity could help oil companies manage freight costs, improve transportation flexibility and reduce exposure to sudden disruptions in international markets.

However, vessel ownership also involves substantial capital investment, operating expenses and long-term maintenance responsibilities. The financial benefits will depend on purchase costs, utilisation levels and future freight-market conditions.

The company’s approach of combining owned vessels, time-charter arrangements and domestic shipbuilding could provide a more diversified logistics model as India continues to depend on imported crude and LPG.

Conclusion

Indian Oil’s plan to purchase crude oil and LPG carriers marks an important step towards strengthening its shipping operations amid rising freight costs and geopolitical uncertainty. With crude transportation expenses reaching $8–10 per barrel in the spot market and LPG freight rates climbing sharply, securing vessel capacity has become a strategic priority.

IOC is also exploring domestic shipbuilding while diversifying crude sourcing and maintaining higher fuel inventories. Although the proposed expansion will require investment, it could improve the company’s ability to manage supply disruptions and support India’s broader Energy Security objectives.