Indian Oil Corporation (IOC), as the largest state-owned refiner in India, has decided to partially reduce its crude oil purchases from the Middle East in the fiscal year 2027/2028. This decision comes in light of uncertainties regarding oil supply from this region.
Details of the Reduction in Oil Purchases
IOC had initially planned to source 47 percent of its crude oil from the Middle East, but this share will now be slightly reduced. Indian refiners have relied on crude oil from the Middle East for decades, as this oil is suitable for Indian refineries due to its short travel time and specific characteristics.
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Impact of War and Price Volatility
The war in Iran and disruptions in crude oil supply from the Middle East have transformed India's oil supply policies. Additionally, ongoing attacks on ships in the Strait of Hormuz have increased war risk premiums and transportation costs. Indian refiners have halted some of their annual purchases and turned to the spot oil market, seeking additional crude oil supplies from South America, including Brazil, Venezuela, and Ecuador, to compensate for the shortfall in the Gulf region.
Moreover, the offering of Middle Eastern crude oil at a discount to Indian buyers may draw the country back to these sources. Some exporters in the Middle East are now providing cash cargoes based on delivery and covering part of the high transportation costs to maintain their share in Asian markets.
Significant Increase in Oil Import Costs
In September 2023, India spent $15.4 billion on crude oil imports, which is a 46 percent increase compared to the previous year. The total cost of India's crude oil imports from April to September also rose by 46.3 percent, reaching $90.6 billion, entirely due to rising oil prices. Meanwhile, the volume of imports in recent months has remained stable or lower than last year's levels.
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