Indian Oil to Cut Middle East Crude Purchases Amid Iran War Impact on Annual Deals for FY28
Indian Oil Corporation (IOC), the largest refiner in India, is set to reduce its crude oil purchases from Middle Eastern suppliers for the financial year 2027-28. This decision comes as the ongoing conflict in Iran disrupts shipments and drives up freight costs. According to a source familiar with the matter, IOC plans to make a modest cut in its annual contracted volumes from Gulf producers.
Shift in Procurement Strategy
Traditionally, Indian refiners have sourced over half of their crude requirements from the Middle East due to its proximity and the availability of heavier, high-sulphur crude grades. For the current financial year ending March 2027, IOC aimed to import approximately 47 percent of its crude from Middle Eastern producers under annual agreements on a free-on-board (FOB) basis, where the buyer covers shipping costs post-loading. However, the ongoing disruptions linked to the Iran war, which has now lasted eight months, have complicated these arrangements.
The conflict has led to attacks on vessels in the Strait of Hormuz, a vital shipping route for Gulf oil exports. This has restricted tanker availability and pushed freight rates close to record highs. As a result, several Asian refiners, including IOC, have had to suspend purchases under existing annual contracts and increasingly rely on the spot market for alternative supplies. Some oil producers have begun offering crude on a delivered basis, absorbing part of the increased freight costs to remain competitive.
Recent Purchases and Market Dynamics
Despite the challenges, IOC and other Indian refiners have recently secured Iraqi crude at discounts to the Dubai benchmark under FOB arrangements. Initially, Indian refiners had ramped up imports of Russian crude to compensate for the shortfall in Middle Eastern supplies. However, purchases of Russian oil may decrease in the coming months if shipping conditions through the Strait of Hormuz improve and Gulf producers offer more attractive prices and freight terms.
The shipping crisis has also impacted IOC’s plans to expand its vessel capacity. In July, the company initiated a tender to acquire stakes in at least two very large gas carriers but has since paused the award process. The cost of a 10-year-old vessel has nearly doubled to around $150 million since the tender was issued, significantly raising the proposed investment’s expense. Global crude prices remain elevated, with Brent crude futures climbing 1.23 percent to $110.10 per barrel, amid renewed concerns over tanker safety and threats to Saudi Arabian oil infrastructure.
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