India Crude Shipping Costs Skyrocket, Refiners Suffer Losses

India’s crude shipping expenses have experienced a dramatic and sustained increase, with freight rates on critical import routes jumping by 137% to 411% since late February, significantly impacting domestic refiners.

This surge compounds already high crude acquisition costs and escalating war-risk insurance premiums for transiting the Strait of Hormuz, directly affecting India’s energy import bill.

Soaring Freight Rates

• Saudi crude (Ras Tanura to India) VLCC: Surged 411% to $4.34 per barrel in August, up from $0.85 in late February.
• Corpus Christi, US, freight: Rose 150% to $15.86 per barrel.
• Russia’s Ust-Luga freight: Increased 137% to $19.90 per barrel.

The cost of war-risk insurance for a single voyage through the Strait of Hormuz has also escalated sharply. This premium, previously around 0.25% of hull value before the West Asia conflict, now stands between $7.5-10 million, a significant jump from approximately $250,000.

Impact on Import Bill and Refiners

• India’s crude oil import bill: Jumped 56.5% year-on-year to $63.4 billion during April-July FY27, despite import volumes rising only 0.5%.
• Average landed crude price: Reached about $106 per barrel, up from $68 a year earlier.
• Net oil and gas import bill: Increased 43.4% to $57.8 billion during April-July.
• Crude import dependence: Remains high at 88.3%.

Domestic refiners have borne the brunt of these combined costs. State-run companies, including IndianOil, Bharat Petroleum, and Hindustan Petroleum, collectively reported net losses of ₹18,149 crore in the June quarter, reversing a combined net profit of ₹16,184 crore from the previous year.

Erik Grundt, a senior analyst at Rystad Energy, noted that the tanker market was already at a six-year high before the Iran war due to strong demand and concentrated ownership, with the 10 largest operators controlling 57% of the Very Large Crude Carrier (VLCC) fleet.

The closure of the Strait of Hormuz on February 28 trapped approximately 10% of the mainstream VLCC fleet, causing rates to skyrocket. A brief ceasefire in mid-June temporarily reopened the Strait, leading to a surge in cargo volumes and a sharp but short-lived decline in rates as vessels returned faster than cargo could be absorbed.

Outlook and Capacity Shifts

However, when the ceasefire collapsed in July, the market, with little spare capacity, saw rates climb back towards their earlier war highs by mid-August.

• Rystad’s base case: Hormuz traffic at around 3 million bpd for the next two to three months.
• Gradual recovery: To 6 million bpd by year-end and 12 million bpd by March.
• Alternative export corridors: Saudi flows through Yanbu expected to reach 4.5 million bpd by Q1 2027.

The freight rate outlook remains intricately linked to the geopolitical situation in the Strait of Hormuz. Even with an eventual geopolitical easing, a return to pre-conflict freight rates is not immediately anticipated.