Indian oil refiners are now sending ships into Hormuz to get cheaper oil - here's why
Indian oil refiners are now chartering tankers to travel through the Strait of Hormuz and collect crude from inside the Persian Gulf. This marks a notable change in their approach as they seek to lower costs and strengthen the reliability of their supply chains.
As the US-Iran conflict persists, Indian oil refiners are adapting their tactics to secure cheaper crude oil from the Middle East through the Strait of Hormuz. This narrow waterway has been largely blocked since the start of the war in March, with only a few ships and tankers managing to pass through. To reduce costs and enhance supply chain reliability, Indian oil refiners have started chartering tankers to acquire crude directly from the Persian Gulf.
This shift deviates from their initial strategy of relying on Gulf producers and international trading companies to transport crude through the disputed waterway, which came with higher costs and additional risks.
Major Indian refiners such as the Indian Oil Corporation, Reliance Industries Ltd., Bharat Petroleum Corp., and HPCL-Mittal Energy Ltd. have been purchasing Iraqi crude on a free-on-board basis. Under this arrangement, the buyer is responsible for organizing the vessel, loading the crude, and delivering the cargo to its destination. This decision allows Indian refiners to have more control over transportation costs, although sourcing and securing suitable tankers remain challenging.
The change in approach stems from a recent recovery in oil flows through the Strait of Hormuz and the restoration of Saudi Arabia's East-West pipeline. According to JPMorgan Chase & Co., Middle Eastern crude shipments have rebounded to 98% of their pre-war levels. Meanwhile, India is showing less willingness to accept Russian cargoes due to escalating US political pressure.
In August, the Directorate General of Shipping eased its advisory, allowing Indian seafarers to travel through Hormuz under specific conditions. This development enabled Indian refiners to access direct crude pickups from within the Gulf. The pricing of Iraqi crude also plays a role in the refiners' strategy change. SOMO, Iraq's state-owned oil marketing company, is offering October deliveries at discounts of up to $37 per barrel compared to regional benchmarks.
As of September, crude volumes traveling through the Strait of Hormuz to India averaged around 1.3 million barrels per day, the highest level since February before the war began. India currently imports about 2.8 million barrels of crude daily from the Middle East, including Saudi oil transported through the Red Sea.
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