Indian Oil Corporation (IOC), India’s largest refiner, plans to scale back crude oil purchases from Middle Eastern suppliers under annual contracts for the financial year 2027-28, as the prolonged Iran war continues to disrupt shipments and push up transportation costs.The state-run refiner is expected to make a modest reduction in its annual contracted volumes from Gulf producers, Reuters reported, citing a source familiar with the matter.The move marks a shift in IOC’s procurement strategy, with Indian refiners traditionally sourcing more than half of their crude requirements from the Middle East. The region has remained a preferred supplier because of its proximity to India and availability of heavier, high-sulphur crude grades.For the current financial year ending March 2027, IOC had planned to source around 47 per cent of its crude imports from Middle Eastern producers through annual agreements on a free-on-board (FOB) basis, under which the buyer bears shipping costs after the oil is loaded.However, disruptions linked to the Iran war, now in its eighth month, have complicated these arrangements. Attacks on vessels passing through the Strait of Hormuz, a crucial shipping route for Gulf oil exports, have restricted tanker availability and pushed freight rates close to record highs.The supply uncertainty has forced several Asian refiners to suspend purchases under some existing annual contracts and increasingly turn to the spot market to secure alternative supplies.Some oil producers have responded by offering crude on a delivered basis, taking on part of the increased freight costs to remain competitive.Despite the disruptions, IOC and other Indian refiners have recently purchased Iraqi crude at discounts to the Dubai benchmark under FOB arrangements, according to the Reuters report.Indian refiners had initially increased imports of Russian crude to offset the shortfall in Middle Eastern supplies. However, Russian oil purchases could moderate in the coming months if shipments through the Strait of Hormuz improve and Gulf producers offer more competitive prices and freight terms to retain their share of the Indian market.Meanwhile, the shipping crisis has also affected IOC’s plans to expand its vessel capacity. In July, the company floated a tender to acquire stakes in at least two very large gas carriers but has since put the award process on hold.The cost of a 10-year-old vessel has nearly doubled to around $150 million since the tender was issued, making the proposed investment significantly more expensive.The concerns come as global crude prices remain elevated amid fresh threats to Middle Eastern energy shipments. Brent crude futures climbed 1.23 per cent to $110.10 per barrel on Wednesday, while US West Texas Intermediate crude rose 1.21 per cent to $99, according to a Times of India report. The rise followed renewed concerns over tanker safety near the Strait of Hormuz and threats to Saudi Arabian oil infrastructure.
