Indian Oil Corporation (IOC) is moving away from long-term Middle Eastern crude contracts for FY 2027/28 due to regional conflicts. The refiner is switching to spot market purchases as high freight costs and shipping disruptions put pressure on profit margins.
Indian Oil Corporation is changing how it buys oil to manage the impact of regional instability. For the upcoming financial year, the company is reducing its dependence on long-term fixed contracts with Middle Eastern suppliers. In the previous fiscal year, these contracts accounted for 47% of the company's crude imports. The refiner is now shifting its strategy toward buying more oil through the spot market, which offers more flexibility in uncertain times.
The decision comes as ongoing regional conflicts, particularly in areas near the Strait of Hormuz, have disrupted maritime logistics. These disruptions have caused freight rates to climb to near-record levels, making traditional long-term delivery contracts less cost-effective. While some Middle Eastern producers are trying to maintain their market share by offering discounts on a delivered basis—where the price includes shipping—the volatility in the region remains a challenge for steady procurement.
Operational costs are also under pressure due to these logistics hurdles. The company's expansion plans, specifically the acquisition of Very Large Gas Carriers, have faced setbacks. The cost of these vessels has reportedly doubled to approximately $150 million since the tender was launched in July. This significant increase in asset costs, combined with the spike in shipping expenses, highlights the difficulties the company faces in maintaining its refining margins.
Investors may monitor how these procurement shifts affect the company's profit margins in the coming quarters. Because shipping premiums and crude prices remain volatile, the company's ability to manage its supply chain costs will be an important factor to watch. Future updates on procurement strategy, the status of its vessel acquisition program, and how it navigates global freight inflation will be essential for understanding the company's financial health.