Indian Oil Corporation (IOC), India’s largest state-owned oil refiner, is preparing to acquire its own crude oil tankers and liquefied petroleum gas (LPG) carriers as international shipping costs surge amid geopolitical tensions in West Asia. The company’s board has approved the purchase of a few vessels, and tenders have already been issued, according to Director of Finance Anuj Jain.
The decision comes as spot-market crude transportation rates have climbed to approximately $8–10 per barrel, compared with around $2–2.50 per barrel under IOC’s existing time-charter arrangements. Disruptions around the Strait of Hormuz, higher war-risk insurance premiums and uncertainty over shipping routes have made securing reliable tanker capacity increasingly important for India’s energy supply chain. IOC is also exploring the possibility of building ships domestically under the government’s Make in India initiative.
Key Takeaways
- Indian Oil’s board has approved the purchase of a few crude oil and LPG vessels.
- The company has already issued tenders for the proposed ship purchases.
- Spot-market crude freight rates have reached approximately $8–10 per barrel.
- IOC’s existing time-chartered crude carriers cost around $2–2.50 per barrel.
- LPG spot freight rates have increased to $160–180 per tonne, compared with approximately $40 normally.
- IOC currently has three crude oil vessels and nine LPG vessels on time charter.
- The company is exploring domestic shipbuilding under the Make in India initiative.
- Russia accounted for approximately 55% of IOC’s crude sourcing in the first half of FY27.
- IOC reported a net profit of ₹21,630 crore in Q2 FY27.
Indian Oil Approves Purchase of Crude and LPG Ships
Indian Oil is planning to strengthen its shipping capabilities by acquiring vessels that can transport crude oil and LPG to its refineries and distribution network.
The company’s board has already approved the purchase of a few vessels, while tenders were issued several months before the announcement.
Director of Finance Anuj Jain discussed the strategy during the company’s second-quarter FY27 earnings call.
He indicated that Indian oil companies need to focus more on shipping capacity as international supply routes become increasingly vulnerable to geopolitical disruptions.
The proposed purchases represent a change in IOC’s traditional approach, which has relied on a combination of time-chartered and voyage-chartered vessels.
Instead of depending entirely on external shipping operators, the company wants greater control over the transportation of its energy supplies.
IOC is considering three broad approaches:
- Optimising existing charters: Continuing to use time-chartered and voyage-chartered vessels where commercially attractive.
- Owning ships: Purchasing crude oil and LPG carriers to secure long-term transportation capacity.
- Domestic shipbuilding: Exploring opportunities to build vessels at Indian shipyards.
The company has not yet disclosed the exact number of vessels, acquisition cost, delivery schedule or shipyards involved in the proposed purchases.
Crude Freight Costs Have Reached $10 per Barrel
Rising shipping costs are one of the main reasons behind Indian Oil’s decision.
Crude oil transportation has become more expensive as geopolitical tensions in West Asia disrupt commercial shipping around the Strait of Hormuz.
The route is strategically important because it connects major oil-producing countries in the Persian Gulf with international energy markets.
When shipping through the region becomes difficult, tanker availability can tighten, vessels may need to take longer routes and insurance premiums can increase.
According to Jain, spot-market freight rates for crude oil have reached approximately $8–10 per barrel.
In comparison, IOC’s existing time-chartered crude carriers cost around $2–2.50 per barrel.
Indian Oil’s Crude Shipping Cost Comparison
| Shipping arrangement | Freight cost per barrel |
|---|---|
| IOC time-chartered vessels | $2–2.50 |
| Spot-market vessels | $8–10 |
The difference highlights the financial advantage of securing shipping capacity in advance.
At the upper end of the reported range, spot-market freight costs are approximately four times the cost of IOC’s existing time-chartered arrangements.
However, the comparison is based on the rates cited by management during the earnings call. Actual shipping costs vary according to vessel type, route, cargo size, insurance, contract terms and market conditions.
LPG Shipping Costs Have Increased Fourfold
The pressure is not limited to crude oil transportation.
IOC is also facing higher freight costs for liquefied petroleum gas, which is an important fuel for Indian households and industries.
According to Jain, LPG freight rates that would normally be around $40 per tonne have increased to approximately $160–180 per tonne in the spot market.
| LPG shipping rate | Cost per tonne |
|---|---|
| Normal freight rate | Approximately $40 |
| Current spot-market rate | $160–180 |
The increase makes securing reliable LPG transportation capacity particularly important.
India imports LPG to meet domestic demand, and disruptions in international shipping can affect both the cost and timing of deliveries.
Owning or securing vessels through longer-term arrangements could help IOC reduce its exposure to sudden increases in freight rates.
However, ship ownership also involves substantial capital expenditure, maintenance, crew costs, insurance and operational responsibilities. The economic benefits will depend on how frequently the vessels are used and how shipping-market conditions evolve.
Strait of Hormuz Disruptions Increase India’s Energy Supply Risks
The Strait of Hormuz is one of the world’s most important maritime energy routes.
A significant share of internationally traded crude oil and petroleum products passes through the narrow waterway connecting the Persian Gulf with the Gulf of Oman.
Disruptions in the region can affect tanker movements, increase insurance costs and create uncertainty for countries that depend heavily on imported energy.
India is particularly exposed because it imports most of its crude oil requirements.
When shipping becomes more expensive, the cost of imported crude rises even if the underlying oil price remains unchanged.
For refiners, this creates additional pressure on procurement budgets and refining margins.
Higher transportation costs can also make some suppliers less attractive compared with countries located farther from the affected shipping routes.
Indian Oil’s proposed vessel purchases are therefore not only a cost-management decision but also an effort to improve supply-chain resilience.
Indian Oil Currently Has 12 Vessels on Time Charter
Indian Oil already uses chartered vessels to transport crude oil and LPG.
According to management, its current arrangements include:
| Vessel category | Vessels on time charter |
|---|---|
| Crude oil carriers | 3 |
| LPG carriers | 9 |
| Total | 12 |
These vessels have helped the company manage transportation costs during the current shipping disruption.
Time-charter agreements allow a company to secure the use of a vessel for an agreed period, generally under predetermined commercial terms.
This can provide greater cost visibility than depending entirely on spot-market shipping rates.
However, chartering does not give the company the same ownership rights and long-term control as purchasing its own vessels.
By adding owned ships to its existing charter arrangements, IOC could create a more flexible transportation network.
The company would still need to decide how much capacity should be owned and how much should be obtained through external operators.
IOC Explores Shipbuilding in India Under Make in India
Indian Oil is also exploring the possibility of building ships domestically.
The initiative is aligned with the government’s broader efforts to strengthen India’s shipbuilding industry and reduce dependence on foreign maritime infrastructure.
Domestic shipbuilding could create opportunities for Indian shipyards, equipment manufacturers, engineering companies and maritime service providers.
Large oil tankers and LPG carriers require specialised designs, safety systems and technical capabilities.
Developing these vessels domestically could support the growth of India’s maritime manufacturing ecosystem.
However, building large commercial vessels requires substantial investment, technical expertise, specialised facilities and long project timelines.
IOC has not announced a confirmed shipbuilding contract, selected shipyard or construction schedule.
The proposal remains an area under exploration rather than a completed manufacturing programme.
Indian Oil Diversifies Crude Oil Procurement
The shipping strategy is part of a wider effort to diversify crude oil sourcing.
During the first half of FY27, Russia accounted for approximately 55% of IOC’s crude oil requirements.
Middle Eastern countries contributed around 24%, while the remaining supplies came from Africa, Brazil, the United States and Venezuela.
Indian Oil’s Crude Procurement Mix
| Country or region | Share of crude sourcing |
|---|---|
| Russia | 55% |
| Middle East | 24% |
| Africa | Approximately 10% |
| Brazil | 7% |
| United States | 2–5% |
| Venezuela | 3–4% |
Figures are approximate percentages reported by company management.
IOC has also increased its reliance on spot-market crude purchases.
Spot imports accounted for approximately 87% of its crude sourcing during the first half of FY27, compared with around 50% in the previous financial year.
This allows the company to respond more flexibly to changing prices and supply availability.
However, greater reliance on spot purchases can also expose refiners to sudden changes in crude prices, freight costs and shipping availability.
The company said it continued to purchase Russian crude at what it considered optimal prices and was also processing Venezuelan crude.
IOC Reports ₹21,630 Crore Net Profit in Q2 FY27
The shipping expansion plans come as Indian Oil reports a strong financial recovery in the September quarter.
The company recorded a consolidated net profit of ₹21,630 crore in Q2 FY27.
This compares with a net loss of ₹2,661 crore in the preceding quarter and a profit of ₹7,610 crore in the corresponding period last year.
The improvement was supported by inventory gains and stronger performance across several business segments.
Indian Oil’s Quarterly Financial Performance
| Financial metric | Q2 FY27 |
|---|---|
| Net profit | ₹21,630 crore |
| Gross refining margin | $18.52 per barrel |
| Inventory gain | ₹6,948 crore |
The reported gross refining margin of $18.52 per barrel excluded the impact of the special additional excise duty, according to the company.
Inventory gains also contributed significantly to the quarter’s profitability.
An inventory gain occurs when the market value of crude oil and petroleum products held by a company increases relative to their recorded cost.
This can improve reported earnings, although inventory gains may reverse when market prices decline.
The company also increased its crude inventory to approximately 39 days, compared with its usual 33–35 days.
It held around 20 days of LPG inventory and 23–25 days of petrol and diesel stocks.
These higher inventory levels provide an additional buffer against supply disruptions.
What Indian Oil’s Ship Purchases Mean for India’s Energy Security
India’s dependence on imported crude oil makes shipping infrastructure an important part of national energy security.
Even when crude is available from international suppliers, the country needs reliable tankers, ports, storage facilities and pipelines to transport it to refineries.
Disruptions in any part of this supply chain can affect fuel availability and increase costs.
Indian Oil’s proposed vessel purchases could help address some of these vulnerabilities.
The strategy may offer several advantages:
- Greater shipping control: Owned vessels can provide more direct control over transportation schedules.
- Lower exposure to spot rates: Long-term ownership can reduce dependence on expensive short-term shipping arrangements.
- Supply reliability: Dedicated vessels can support the movement of crude and LPG during periods of market disruption.
- Procurement flexibility: Better shipping capacity can make it easier to source crude from different countries.
- Domestic manufacturing: Shipbuilding opportunities could support Indian maritime companies and industrial suppliers.
Nevertheless, owning ships does not eliminate geopolitical risks. Tankers still need to navigate international routes, comply with maritime regulations and obtain appropriate insurance.
The long-term financial benefits will depend on vessel utilisation, acquisition costs and the evolution of global freight rates.
The Bigger Picture
Indian Oil’s plan to purchase crude and LPG carriers highlights how geopolitical tensions are changing the economics of India’s energy supply chain. The company is no longer looking only at the price of crude oil; transportation costs, insurance premiums and access to reliable vessels have become equally important considerations. With spot crude freight rates reaching $8–10 per barrel, securing shipping capacity can provide a meaningful financial advantage.
The proposed purchases could also support India’s broader ambition to develop domestic shipbuilding capabilities and strengthen maritime infrastructure. However, the success of the strategy will depend on the cost of acquiring vessels, their utilisation and the ability to operate them efficiently. For India, the wider objective is to make energy imports more reliable and reduce the vulnerability of its fuel supply chain to international shipping disruptions.
Frequently Asked Questions
1. Why is Indian Oil planning to buy ships?
Indian Oil wants greater control over crude oil and LPG transportation as geopolitical disruptions and rising freight rates make international shipping more expensive and uncertain.
2. How much have crude oil shipping costs increased?
According to IOC’s finance director, spot-market crude freight rates have reached approximately $8–10 per barrel, compared with $2–2.50 per barrel under the company’s existing time-charter arrangements.
3. How much does LPG transportation cost?
LPG spot freight rates have increased to approximately $160–180 per tonne, compared with a normal rate of around $40 per tonne.
4. Has Indian Oil’s board approved the ship purchases?
Yes. The company said its board had approved the purchase of a few vessels and that tenders had already been issued. The exact number and acquisition cost have not been disclosed.
5. How many ships does Indian Oil currently use?
IOC currently has three crude oil vessels and nine LPG vessels on time charter, according to its finance director.
6. Is Indian Oil planning to build ships in India?
Yes. The company is exploring domestic shipbuilding opportunities under the government’s Make in India initiative. However, no final shipyard or construction contract has been announced.
7. Why is the Strait of Hormuz important to India?
The Strait of Hormuz is a major international energy shipping route. Disruptions can affect tanker availability, insurance costs and the transportation of crude oil and petroleum products to India.
8. How much profit did Indian Oil report in Q2 FY27?
Indian Oil reported a net profit of ₹21,630 crore in Q2 FY27, compared with a net loss of ₹2,661 crore in the previous quarter.
Looking Ahead
Indian Oil’s proposed vessel acquisitions will be an important step in its efforts to strengthen control over energy transportation. The company will need to evaluate the economics of ship ownership against long-term charter arrangements, particularly as international freight rates remain volatile. The tender process, vessel specifications, acquisition costs and delivery schedules will determine how quickly the plan can translate into additional shipping capacity.
In the longer term, the initiative could benefit India’s energy security and domestic maritime manufacturing industry. However, owning vessels is only one part of the solution. Diversifying crude suppliers, maintaining sufficient inventories, improving port infrastructure and securing reliable international shipping routes will remain essential for protecting India’s energy supply chain.
Get the day’s top stories in your inbox
One concise email. No spam, unsubscribe anytime.
