India’s Top State Refiner to Reduce Middle East Term Oil Purchases

Indian Oil Corporation will slightly reduce the Middle Eastern share of its crude purchases under annual term deals for the 2027/2028 fiscal year. That year begins next March. The change reflects uncertainty over whether Middle Eastern supplies will remain dependable.

IOC had initially planned to obtain 47% of its crude from the Middle East. However, war in Iran, disrupted regional supply, attacks on vessels near the Strait of Hormuz, and higher freight and insurance costs have changed Indian refiners’ sourcing plans.

IOC’s shift does not mean it is abandoning Middle Eastern oil. Indian refiners have also suspended some term purchases and bought more crude on the spot market. They have added supplies from Brazil, Venezuela, and Ecuador. Discounts and delivered cargo offers from Middle Eastern exporters could still attract Indian buyers.

Annual term crude-oil deals are longer-term contracts between a buyer and seller. They generally arrange repeated deliveries over a year at agreed commercial terms. This gives refiners more predictable supply and helps producers secure customers. The article refers to IOC’s planned purchases under such annual agreements.

Spot-market buying works differently. A refiner purchases an available cargo for near-term delivery rather than relying entirely on a yearly schedule. The cargo may come from a different producer or region. Spot buying can provide flexibility when contracted supplies are disrupted, though prices and transport costs can change quickly.

IOC and other Indian refiners have suspended some term purchases and turned to spot supplies after Middle Eastern disruptions. They have tapped crude from South America. Middle Eastern exporters are also offering discounted spot cargoes and delivered deals to keep Asian customers.

IOC initially planned to procure 47% of its crude from the Middle East during the 2027/2028 fiscal year. It now expects that share to fall slightly. The adjustment is significant because Middle Eastern suppliers have long been central to India’s refinery system and crude purchasing strategy.

India’s recent import costs have also risen sharply. The country paid $15.4 billion for crude imports in September, up 46% from $10.5 billion a year earlier. From April through September, the import bill climbed 46.3%, reaching $90.6 billion, compared with $61.9 billion in the same period last year.

The article attributes the increase entirely to higher oil prices. Import volumes remained flat or lower than year-ago levels in recent months. Reignited Middle Eastern tensions pushed up international prices and India’s crude basket, raising costs even without greater import volumes.

Indian refiners have relied on Middle Eastern crude for decades because the region is relatively close to India. Shorter travel times make deliveries more practical and can reduce exposure to long shipping routes. Stable access has also made Middle Eastern suppliers an important part of India’s refinery planning.

The crude itself is another reason. Middle Eastern producers offer heavier and higher-sulfur grades. These qualities suit the specifications of Indian refineries, which are equipped to process such crude. In simple terms, the feedstock fits the plants’ existing capabilities and production systems.

That fit does not eliminate today’s risks. War in Iran, disrupted regional supply, attacks near the Strait of Hormuz, and higher freight and insurance costs have made Middle Eastern crude harder and more expensive to move. Indian refiners are therefore testing other sources while still considering discounted regional cargoes.

War risks have changed the economics of Middle Eastern oil. Ongoing attacks on vessels in the Strait of Hormuz have increased war-risk insurance premiums and freight costs. The conflict and disruption have also made future supply less certain for Indian refiners that traditionally depend on the region.

Higher costs affect both availability and price. Indian refiners have suspended some annual term purchases and sought cargoes on the spot market. They have also bought additional crude from South America to replace some lost Persian Gulf supply. This gives them alternatives when regular regional deliveries are disrupted.

Middle Eastern producers are responding with discounts to the Dubai/Oman benchmark. Some now offer spot cargoes on a delivered basis and pay part of the elevated shipping costs. These measures may preserve market share, but the article indicates that uncertainty and expensive transport continue to influence India’s buying decisions.

Indian refiners are turning to South American crude, including supplies from Brazil, Venezuela, and Ecuador. These barrels help offset crude lost from the Persian Gulf when Middle Eastern deliveries become uncertain. They also give refiners more choice instead of depending entirely on one regional supply base.

The main advantage of distant sourcing is flexibility. A refiner can seek available cargoes in another producing region and use the spot market when term deliveries are disrupted. The drawback is distance. Longer voyages generally require more time and can raise freight, insurance, and exposure to shipping risks. These effects are established features of oil transport, although the article does not quantify them for South American cargoes.

Middle Eastern suppliers are trying to remain competitive by offering discounts and delivered cargoes. India may therefore balance cheaper regional barrels against the security of diversified supply. The article indicates that sourcing decisions will remain sensitive to prices, transport costs, and regional safety.

Crude oil is a naturally occurring mixture of hydrocarbons extracted from underground reservoirs. A refinery heats it and separates components by boiling range. It then uses processing units to convert heavier molecules into useful products such as gasoline, diesel, jet fuel, and other materials. The source article does not explain this process; this is established industry knowledge.

Crude grades differ in density and sulfur content. Light crude generally contains more easily separated lighter components, while heavy crude contains more large, complex molecules. High-sulfur crude needs additional treatment to remove sulfur. Refineries therefore use different combinations of distillation, conversion, and cleanup equipment to process particular feedstocks efficiently.

The article notes that Indian refineries suit heavier, higher-sulfur Middle Eastern crude. That compatibility helps explain their traditional dependence on the region. When India buys crude from elsewhere, the grade must still match refinery capabilities, or additional processing and operating costs may be required.