Indian Oil Corporation (IOC), the country’s largest oil refiner, is planning to acquire its own crude oil and liquefied petroleum gas (LPG) carriers as geopolitical tensions around the Strait of Hormuz drive up freight costs and highlight the need for greater control over energy transportation.
The company’s board has already approved the purchase of a few vessels, and tenders were issued several months ago, IOC Director of Finance Anuj Jain said during the company’s second-quarter earnings call.
Jain said Indian oil companies need to increase their focus on shipping to strengthen the country’s energy supply chain. IOC is also exploring the possibility of building vessels in India under the government’s Make in India initiative.
The proposed acquisitions signal a potential shift in IOC’s shipping strategy, which has traditionally relied on a combination of time-chartered and voyage-chartered vessels. The company is now considering three approaches: optimising existing charter arrangements, acquiring vessels and supporting domestic shipbuilding.
The focus on securing shipping capacity has intensified amid disruptions to maritime traffic in West Asia, particularly around the Strait of Hormuz, which have pushed up freight rates and war-risk insurance costs.
IOC currently operates three crude oil carriers and nine LPG vessels under time-charter arrangements. These contracts have helped the company contain transportation costs during the ongoing market volatility.
According to Jain, time-chartered crude carriers cost IOC around USD 2–2.50 per barrel, compared with spot-market freight rates of USD 8–10 per barrel. Similarly, LPG freight rates, which would normally be around USD 40 per tonne, have surged to USD 160–180 per tonne in the spot market.
Diversification of crude sourcing
Alongside strengthening its shipping capabilities, IOC is diversifying its crude procurement sources to reduce exposure to supply disruptions.
Russia accounted for 55 per cent of the company’s crude imports during the first half of FY27, while supplies from the Middle East contributed 24 per cent. Africa accounted for around 10 per cent, Brazil 7 per cent, the United States 2–5 per cent and Venezuela 3–4 per cent, Jain said.
The company has also increased its dependence on spot purchases, with spot imports accounting for approximately 87 per cent of crude sourcing in the first half of FY27, compared with around 50 per cent in the previous financial year.
Despite volatility in international oil markets, IOC said it had been able to negotiate discounts against benchmark prices. The premium or discount on benchmark crude during the September quarter ranged from a discount of USD 5 per barrel to a premium of USD 12 per barrel, compared with a range of zero to USD 18 per barrel in the preceding quarter.
IOC has continued procuring Russian crude at what it described as optimal prices and has also been processing Venezuelan crude.
Higher inventories to strengthen supply security
The diversification strategy comes amid a sharp increase in crude oil prices following the escalation of US-Iran hostilities towards the end of February. The Indian crude basket, which averaged around USD 65–70 per barrel in February, remained above USD 100 per barrel for much of the first quarter and averaged approximately USD 120 per barrel in October, Jain said.
Despite the supply-chain challenges, IOC has maintained refinery operations at optimal levels and increased its crude inventory to around 39 days, against its normal range of 33–35 days. The company was also holding approximately 20 days of LPG inventory and 23–25 days of petrol and diesel stocks.
Strong quarterly financial performance
IOC reported a net profit of Rs 21,630 crore for 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 improved performance was supported by inventory gains and stronger contributions from several business segments. The company reported a gross refining margin of USD 18.52 per barrel, excluding the impact of the special additional excise duty, and an inventory gain of Rs 6,948 crore during the quarter.
Jain, however, cautioned that geopolitical developments continued to pose significant uncertainties, particularly in terms of crude procurement, shipping costs and marketing margins.
IOC’s proposed vessel acquisitions and exploration of domestic shipbuilding reflect a broader effort to strengthen India’s energy logistics resilience. With the country heavily dependent on imported crude oil and international maritime routes, greater ownership of shipping capacity could help oil companies manage freight volatility, secure transportation availability and improve supply-chain resilience during geopolitical disruptions.