The importance of securing shipping capacity has increased as geopolitical tensions in West Asia disrupt commercial movement near the Strait of Hormuz, pushing up freight rates and war-risk insurance costs.
New Delhi: State-owned Indian Oil Corporation plans to acquire crude oil and liquefied petroleum gas carriers of its own 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.
The company’s board has already approved the purchase of a few vessels, and tenders were issued several months ago, Director of Finance Anuj Jain said during its second-quarter earnings call.
“The country needs oil sector companies to focus more on the shipping area now,” Jain said, adding that IOC was also exploring the possibility of building ships in India under the government’s Make in India initiative.
The move marks a potential shift in the company’s shipping strategy, which has traditionally relied on a mix of time-charter and voyage-chartered vessels. IOC is now examining three approaches: optimising existing charter arrangements, owning ships and supporting domestic shipbuilding.
The importance of securing shipping capacity has increased as geopolitical tensions in West Asia disrupt commercial movement near the Strait of Hormuz, pushing up freight rates and war-risk insurance costs.
IOC currently has three crude oil vessels and nine LPG vessels on time charter. These arrangements have provided significant cost savings during the current crisis, Jain said.
The company’s time-chartered crude carriers cost around USD 2-2.50 per barrel, compared to spot-market rates of as much as USD 8-10 per barrel.
LPG freight rates, which would normally be around USD 40 per tonne, have risen to USD 160-180 per tonne in the spot market, he said.
The shipping strategy is part of a broader effort to diversify crude procurement and reduce exposure to supply disruptions. IOC sourced 55 per cent of its crude requirements from Russia during the first half of the current financial year, while Middle Eastern supplies accounted for 24 per cent, Jain said.