Indian Oil plans to trim Gulf term crude deals as freight costs climb

Indian Oil Corp plans to cut the crude it buys from Middle Eastern producers under annual deals in 2027/28, The Economic Times reported on 21 October. Attacks on vessels near the Strait of Hormuz are keeping freight near record highs¹.

The report relied on one unidentified source and gave no size for the cut beyond "slightly"¹. It quoted no company statement, so the plan is not confirmed by IOC.

IOC had planned to take about 47% of its crude imports from Middle Eastern producers under annual deals in the year ending March 2027, on a free-on-board basis¹. Under free on board, the buyer pays the sea freight and insurance⁴. Delivered offers, by contrast, come with part of the freight absorbed by the producer¹. Indian refiners have traditionally taken more than half their annual crude from the region, especially heavier, high-sulphur grades¹.

Why the annual deal is being reworked

The report says the war with Iran, now in its eighth month, has forced Asian refiners to suspend purchases under some annual deals¹. Attacks on tankers have cut the number of available ships and pushed freight rates to near-record highs¹.

Refiners have moved to spot purchases instead. Some producers now offer crude on a delivered basis and absorb part of the high freight cost to attract buyers¹. In such deals, part of the shipping cost sits inside the price of the crude rather than on a separate freight invoice¹.

Price, not only freight, is shifting. In recent months some Indian refiners, including IOC, bought Iraqi crude at a discount to the Dubai benchmark on a free-on-board basis, the report said¹. It added that Russian imports could ease in the coming months. Those volumes rose as Middle East supplies fell, and more crude is now moving through Hormuz while Gulf producers offer discounts on crude and freight to hold market share¹.

What freight adds to a barrel

The International Energy Agency said shipping crude from the Middle East Gulf to Asia cost more than $37 a barrel by mid-October, in an analysis reported on 21 October². That is over five times pre-war levels². For a very large crude carrier holding 2 million barrels, it means more than $74 million of freight on a single cargo, against less than $15 million before the conflict². The Maritime Executive put the Gulf to Asia cost above $35 a barrel on 21 October⁵.

For India, Platts assessed the VLCC rate from the Persian Gulf to West Coast India at $95.83 per metric ton on 19 October, against $19.15 on 27 February, before the conflict⁶.

The cost shows up in the import bill. PPAC data put India's crude purchases at $90.6 billion in April to September, up 46.3% from a year earlier, while volumes were almost flat at 122.7 million tonnes against 121.8 million tonnes³. September alone cost $15.4 billion, up 46.6%, on 21.7 million tonnes, up 6.8%³. The Indian basket averaged $121.25 a barrel in October against $65.08 a year earlier³.

Freight and the rupee both sit on top of that. Anindya Banerjee, head of commodities research at Kotak Neo, said Brent futures are around $110 and spot crude carries a $10 to $15 premium over futures, putting the landed cost at $120 plus, with freight adding another $10 to $15⁷. The rupee traded at 94.47 to the dollar on 21 October, against 89.87 at the end of 2025⁸.

How it reaches buyers of fuel and freight

Domestic fuel prices move with crude, but in steps. Retail petrol and diesel prices rose 7.5% in May, the only period of increases in response to the war, according to Oxford Economics⁹. It called November "the last realistic window" for another rise before campaigning for early-2027 state elections⁹. It expects any increase to be about half the size of the May move⁹.

So far the government and oil companies have absorbed the immediate impact, with some under-recoveries, and there is no official indication of an immediate petrol or diesel price increase, Banerjee said⁷.

Aviation fuel shows the pass-through more clearly. ATF in Delhi was about ₹137 a litre after the 1 October revision, the third monthly increase in a row¹⁰. It rose about ₹16 a litre in October, after ₹6.28 in September and ₹5 in August¹⁰. The Federation of Indian Airlines, which represents IndiGo, Air India and SpiceJet, says fuel is now 50 to 55% of airlines' operating costs, against the usual 30 to 40%¹⁰.

Vessels are the other rising cost

IOC issued a tender in July to buy a stake in at least two very large gas carriers, the ships that carry LPG. It has paused the award because costs nearly doubled to about $150 million for a 10-year-old vessel after the tender was floated¹.

The secondhand market shows the same pressure. BW LPG India agreed to sell an 18-year-old VLGC for a price in the low-$80 million range¹¹. A 15-year-old VLCC has risen 177% over the past year to $160 million, according to Xclusiv Shipbrokers estimates cited by Platts⁶. A Suezmax of similar age is up 127% to $92 million⁶.

What to watch

The report named only IOC. It did not say whether BPCL, HPCL or Reliance Industries plan similar cuts to 2027/28 annual volumes¹. How much freight Gulf producers keep absorbing in delivered offers will decide how far refiners move away from free-on-board term deals¹.

Tanker supply is the other variable. BRS Shipbrokers said US sanctions relief for sanctioned tankers "may not drive looser oil or tanker market fundamentals", because most candidate ships already trade and would simply switch trades⁶.

LPG sourcing is changing as well. US Ambassador Sergio Gor said India's share of LPG imports from the United States rose to 67% from under 10% in a year, making the US the largest supplier¹².

On the ground, Gulf exports already exceed pre-war levels at about 24 million barrels a day, but flows through Hormuz are at roughly 82% of pre-war levels and attacks continue². Banerjee called the US election on 3 November the event to watch for commodities and currencies⁷. Buyers should also watch whether the central government allows a fuel price increase in November⁹.