Indian Oil Plans Slight Cut to Middle East Oil Contracts in 2027/28
Key Facts
Indian Oil plans to reduce its purchases of Middle Eastern oil under annual contracts in fiscal 2027/28, a source familiar with the matter told Reuters, amid supply uncertainty caused by the war in Iran. The source described the planned reduction in contracted volumes from Gulf producers as "slight". The company's plan for the current fiscal year had targeted securing about 47% of its crude imports from Middle Eastern producers through annual contracts. Those contracts are on a free-on-board basis. Indian refiners have traditionally relied on the region because of its geographical proximity, particularly for heavier, higher-sulfur crude grades, according to Reuters.
The plan follows a shift in Indian Oil's purchases toward the spot market, according to the company's first-quarter earnings call published in August. The company said spot imports accounted for about 84% of its imports in the first quarter of fiscal 2026/2027. The comparable figure a year earlier was 51%, management said on the call. Meanwhile, the earnings presentation published in August showed that the share of high-sulfur crude used fell to 48.9%. That share stood at 61.3% in the previous quarter, as the company adjusted the crude mix used by its refineries during the disruptions.
Purchases from the region face transport pressures, as attacks on ships transiting the Strait of Hormuz have constrained vessel availability, according to Reuters. The attacks have pushed freight rates close to record levels. Refiners have turned to spot purchases, while some producers have offered crude on a delivered basis and absorbed part of the higher shipping costs to attract buyers. Rising costs have also affected Indian Oil's maritime plans, prompting the company to temporarily halt plans to award a tender to buy stakes in very large gas carriers. The suspension came after the cost of a 10-year-old vessel nearly doubled to about $150 million, according to the report.
Indian Oil's management had discussed measures taken to ensure continued supplies during the conflict on its May earnings call. It said the company had diversified its sources of crude and gas purchases across alternative geographical regions. The measures also included using alternative trade routes, according to management's comments on the call. On profitability, management said inventory the company had purchased at normal prices before the conflict helped it weather the impact of the disruptions. It said this inventory largely shielded profitability for the fiscal year just ended from the fallout.
The contract review is part of broader moves by India's state-owned refiners to diversify supply arrangements, previously covered by Bloomberg. These refiners typically buy about half their crude requirements through long-term contracts and secure the rest on the spot market, according to the agency. Alternatives they discussed included supply arrangements with trading companies that import oil from multiple regions. Those discussions aimed to ensure continued deliveries in the event of a major supply disruption. Bloomberg said India's diversification strategy also includes tapping new supplies from Guyana, Brazil and the United States.
Reuters pointed to a possible decline in India's Russian oil imports over the coming months as supplies through the Strait of Hormuz increase. It also linked that possibility to Middle Eastern producers offering crude and shipping discounts to retain their share of the Indian market. On refining capacity, Indian Oil's earnings presentation published in August included a target date for commissioning its refinery expansions. The projects included expansions at Panipat, Gujarat and Barauni, which were then expected to begin operating by December 2026. The planned commissioning date for these expansions falls before fiscal 2027/28, during which the source familiar with the matter indicated the slight reduction in annual contract purchases was planned.