Indian oil refiners change strategy to get cheaper oil; hire ships & tankers to sail through Strait of Hormuz
Amid the ongoing US-Iran conflict, India’s oil refiners are changing tactics to procure crude from the Middle East through the Strait of Hormuz. This narrow channel of water has been effectively shut since the start of the war in March, with limited ships and tankers passing through.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.
Why Indian oil refiners have changed strategy
The strategy is a departure from the approach Indian refiners have followed since the early stages of the US-Iran war. Concerned about the possibility of attacks, refiners had refrained from sending their own vessels through the Strait of Hormuz.Also Read | Trade irony amid Trump threat: Why Russia is buying its own oil as fuel from IndiaInstead, they left the risks associated with navigating the disputed waterway to Gulf producers and international trading companies, which transported the crude to India. This arrangement came at a significant additional cost, with refiners paying a substantial premium under so-called cost and freight terms.That approach has started to change in recent weeks, according to a Bloomberg report. Indian Oil Corporation, Reliance Industries Ltd., Bharat Petroleum Corp. and HPCL-Mittal Energy Ltd. have purchased Iraqi crude on a free-on-board basis.Under FOB transactions, the buyer is responsible for arranging the vessel, loading the crude and transporting the cargo to its destination. By opting for such deals, Indian refiners can exercise greater control over transportation costs, although sourcing and locking in suitable tankers remains a challenge.People familiar with the matter told Bloomberg that the refiners have now floated tenders and are in discussions with shipping companies.Sinokor Group and Dynacom Tankers Management Ltd. have so far won tenders, the people said. Shipping Corp. of India and Lila Global had also submitted bids, but the tenders were subsequently cancelled, according to the people quoted in the report.The shift in approach follows a recovery in oil flows through the Strait of Hormuz in recent months, along with the restoration of Saudi Arabia’s East-West pipeline.According to a note issued by JPMorgan Chase & Co. this week, Middle Eastern crude shipments have recovered to 98% of their pre-war levels. At the same time, India is showing greater reluctance to accept Russian cargoes as political pressure from the US increases, the report claimed.Indian refiners had earlier faced difficulties in arranging crude pickups from within the Gulf because New Delhi did not allow vessels undertaking such voyages to use Indian crew.That position changed in August, when the Directorate General of Shipping eased its advisory. Instead of prohibiting Indian seafarers from travelling through Hormuz, the revised guidance asked shipowners and placement agencies to secure the consent of Indian seafarers before they undertook the voyage.The pricing of Iraqi crude could also be a factor behind the refiners’ decision to alter their strategy. SOMO, Iraq’s state-owned oil marketing company, has been offering contracted supplies for October at discounts of as much as $37 a barrel compared with regional benchmarks.Data from Kpler shows that crude volumes travelling through the Strait of Hormuz to India averaged around 1.3 million barrels a day in September.That was the highest level recorded since February, before the war began. Overall, India’s crude imports from the Middle East stand at about 2.8 million barrels a day, including Saudi oil shipped through the Red Sea.
