Indian Oil Corporation Plans Vessel Acquisition Amid West Asia Shipping Risks

State-owned Indian Oil Corporation (IOC) plans to acquire crude oil and liquefied petroleum gas (LPG) carriers of its own. The decision comes as disruptions to shipping around the Strait of Hormuz and soaring freight costs prompt India's largest oil refiner to strengthen control over its energy supply chain.

Director of Finance Anuj Jain stated during the second-quarter earnings call that the company's board has already approved the purchase of a few vessels, with tenders issued several months ago. Jain noted that the country's oil sector companies need to focus more on the shipping area, adding that IOC is also exploring the possibility of building ships in India under the government's Make in India initiative.

This move marks a potential shift in the company's shipping strategy. Traditionally, IOC has relied on a mix of time-charter and voyage-chartered vessels. The company is now examining three approaches: optimising existing charter arrangements, owning ships, and supporting domestic shipbuilding.

The importance of securing shipping capacity has increased due to geopolitical tensions in West Asia that disrupt commercial movement near the Strait of Hormuz. These tensions have pushed up freight rates and war-risk insurance costs. Currently, IOC has three crude oil vessels and nine LPG vessels on time charter, which have provided significant cost savings during the current crisis. Jain stated that time-chartered crude carriers cost around USD 2 to USD 2.50 per barrel, compared to spot-market rates of as much as USD 8 to USD 10 per barrel. Meanwhile, LPG freight rates have risen from the normal USD 40 per tonne to USD 160 to USD 180 per tonne in the spot market.

The shipping strategy is part of a broader effort by IOC to diversify crude procurement and reduce exposure to supply disruptions. During the first half of the current financial year, IOC sourced 55 percent of its crude requirements from Russia, while Middle Eastern supplies accounted for 24 percent. Africa contributed about 10 percent, Brazil 7 percent, the United States 2 to 5 percent, and Venezuela 3 to 4 percent. The company also substantially increased its reliance on spot purchases, which accounted for about 87 percent of crude sourcing in the first half of FY27, compared to around 50 percent in the previous financial year.

Despite supply-chain disruptions, IOC maintained refinery operations at optimal levels and increased crude inventories to about 39 days, up from its usual 33 to 35 days. The company was also holding 20 days of LPG inventory and 23 to 25 days of petrol and diesel stocks.

For the September quarter, IOC reported a net profit of Rs 21,630 crore, compared with a loss of Rs 2,661 crore in the preceding quarter and a profit of Rs 7,610 crore in the year-earlier period. The company recorded a gross refining margin of USD 18.52 per barrel, excluding the impact of special additional excise duty, alongside an inventory gain of Rs 6,948 crore. However, Jain cautioned that geopolitical developments remain a key source of uncertainty for the company, particularly regarding their impact on crude procurement, freight, and marketing margins.

"Logistics resilience is vital for heavy-import economies like India, especially during geopolitical crises that inflate spot freight and insurance rates. Indian Oil Corporation's strategy to balance time charters with vessel ownership and domestic shipbuilding illustrates a calculated approach to mitigating supply chain vulnerabilities. For large enterprises operating in volatile global markets, owning core transport assets can act as a crucial financial cushion against external disruptions." — Dr. Shishir Gupta, Founder & CEO, StartupLanes