Indian Oil plans to buy its own oil, LPG ships as freight costs surge 4 times

Indian Oil Corporation is seeking greater control over how crude oil and LPG reach its refineries. Its board has approved buying a few vessels, and tenders were issued several months ago. The company is also examining whether ships can be built in India through the Make in India initiative.

The move responds to sharply higher freight rates and disruptions near the Strait of Hormuz. IOC has traditionally used time-chartered and voyage-chartered vessels. Now it is considering a mix of owned ships, improved charter contracts, and domestic shipbuilding. Ownership can provide more predictable access to transport capacity.

IOC currently has three crude carriers and nine LPG vessels under time-charter arrangements. Those ships helped contain transport expenses during the crisis. Buying vessels may therefore limit exposure to expensive spot-market shipping, while Indian-built ships could support the country’s shipbuilding goals. The plan remains under consideration alongside the approved purchases.

In standard shipping practice, a time-chartered vessel is hired for an agreed period. The charterer generally pays for the ship’s use over that time and can schedule multiple voyages within the contract. A voyage-chartered vessel is hired for one defined journey, such as moving cargo from one port to another.

An owned vessel is different because the oil company purchases and controls the ship. It does not need to negotiate a new charter for every trip or rely on a charter contract continuing. However, ownership also means taking responsibility for the vessel’s financing, maintenance, crewing, insurance, and other operating costs.

IOC has traditionally depended on both time-chartered and voyage-chartered vessels. It currently has three crude carriers and nine LPG vessels under time-charter arrangements. Its new approach could combine ownership with better charter agreements, giving it flexibility while reducing exposure to sudden spot-market freight increases.

IOC’s shipping costs show how quickly transport can become a major oil-market expense. For crude, the company pays around $2–2.50 per barrel for time-chartered carriers. Comparable spot-market rates have reached as much as $8–10 per barrel. That means the highest reported spot rate is roughly four times the lower time-charter range.

LPG transport has seen an even larger increase. Freight that would normally cost about $40 per tonne has risen to $160–180 per tonne in the spot market. The upper figure is about four and a half times the usual rate. These are shipping costs, separate from the price paid for the oil or gas itself.

The increases reflect disruptions around the Strait of Hormuz, along with higher war-risk insurance costs. IOC’s existing time-chartered vessels have helped contain its expenses. The company is considering vessel purchases partly to reduce dependence on volatile spot-market shipping.

The Strait of Hormuz is an important route for commercial energy movement. When geopolitical tensions disrupt traffic there, shipping companies face greater uncertainty about whether vessels can pass safely and on schedule. Fewer willing or available ships can make transport capacity more expensive.

The mechanism works through two linked costs. Freight rates rise because carriers may face delays, rerouting, longer journeys, or greater operational risk. War-risk insurance also becomes more expensive because insurers face a higher chance of losses connected with hostilities or dangerous passage. Ship operators then reflect those costs in transport prices.

The article connects these pressures directly to IOC’s experience. Crude spot freight reached $8–10 per barrel, compared with $2–2.50 for time-chartered carriers. LPG spot freight rose to $160–180 per tonne from about $40. IOC says geopolitical developments remain a concern because they affect procurement, freight costs, and marketing margins.

When IOC must use expensive spot-market shipping, the cost of bringing crude and LPG to its operations rises sharply. That can reduce the margin left after buying, transporting, refining, and selling petroleum products. The article identifies freight costs and marketing margins as continuing areas of uncertainty.

The difference is substantial. IOC pays about $2–2.50 per barrel for time-chartered crude carriers, while spot rates can reach $8–10. LPG spot freight has climbed to $160–180 per tonne, compared with a usual $40. These higher costs do not automatically determine final fuel prices, because other factors also affect pricing, but they increase pressure on the business.

Supply can also become less predictable when routes are disrupted. IOC has responded by keeping refinery operations at optimal levels and increasing inventories. It holds about 39 days of crude, versus the usual 33–35 days, plus 20 days of LPG and 23–25 days of petrol and diesel.

IOC is using three defenses against supply disruption: transport control, extra stocks, and more varied crude sourcing. Buying ships can give the company access to vessels without depending entirely on spot-market availability. Larger inventories can keep refineries supplied when deliveries are delayed. Regional diversification reduces the damage if one supply area becomes difficult to reach.

The article gives clear examples. IOC has raised crude inventory to about 39 days from the usual 33–35 days. It also holds 20 days of LPG and 23–25 days of petrol and diesel. In the first half of the financial year, Russia supplied 55% of its crude, while the Middle East supplied 24%, Africa 10%, Brazil 7%, the United States 2–5%, and Venezuela 3–4%.

These measures do not remove risk. They can, however, reduce immediate exposure to blocked routes, sudden freight increases, and supply delays. IOC is also considering Indian-built ships, extending its strategy beyond purchasing cargoes and managing inventories.

The global oil trade begins with crude production in countries such as Russia, Middle Eastern states, Africa, Brazil, the United States, and Venezuela. Buyers such as IOC purchase that crude and arrange transport, often using tankers. The ships deliver it to refineries, where crude is turned into products including petrol, diesel, and LPG-related supplies.

Shipping is a crucial link because freight and insurance add to the delivered cost. IOC may use time-chartered vessels, voyage charters, or owned ships. Refineries can also hold inventories as a buffer when cargoes are delayed. IOC has about 39 days of crude stocks, 20 days of LPG, and 23–25 days of petrol and diesel stocks, according to the article.

Consumer prices are influenced by several stages, not just crude. The article highlights crude benchmarks, discounts or premiums, freight costs, refining performance, inventory gains, and marketing margins. IOC’s September-quarter profit reached Rs 21,630 crore, helped by a Rs 6,948 crore inventory gain. The article does not specify how much consumers paid.