India's state oil refiners are planning to reduce their reliance on the Middle East following the supply shock of the Iran war, according to people familiar with the matter. The processors are seeking to trim the volume they buy from Middle Eastern producers under long-term contracts and will lean more heavily on alternative options including spot-market purchases and supply arrangements with trading houses that source crude from multiple regions, the people said.
Diversification strategy
As part of its diversification strategy, India plans to take advantage of new supply from countries such as Guyana, Brazil, and the US, the people familiar said. Options under consideration by refiners include more immediate deals and supply arrangements with trading houses that source crude from multiple regions, allowing for steady deliveries even in the event of another major disruption, they added. India is also planning to build strategic reserves of crude, LPG and liquefied natural gas large enough to meet as much as a month of domestic demand, and the oil ministry has set up a committee to study details including operating models and potential locations.
Supply side intelligence
The South Asian nation imports about 90% of its crude needs, averaging around 5 million barrels a day. Processors such as Indian Oil Corp., Bharat Petroleum Corp., and Hindustan Petroleum Corp. typically buy nearly half of their overall crude through long-term deals, with the remainder from the spot market. US waivers allowing the purchase of Russian oil have provided some supply relief for Indian refiners, which have snapped up large volumes, but that relief is still temporary, according to the people. The change to India's oil-buying strategy would mark one of the biggest shifts in years and will require balancing energy security needs while keeping crude-purchasing costs in check.
Demand and diplomatic response
The Iran war has exposed India's reliance on the Middle East for energy imports, from oil to liquefied petroleum gas, and has led to shortages, higher prices, and heavy losses for refiners. During the height of the conflict, India was forced into a diplomatic scramble to keep energy flowing from the Middle East. That included reaching out to Iran and its military to request tankers carrying LPG be allowed to transit the Strait of Hormuz. Top oil ministry officials also worked the phones, calling senior figures in Persian Gulf countries to ensure fuel supplies. India's External Affairs Minister S Jaishankar visited the United Arab Emirates in April, followed by Prime Minister Narendra Modi a few weeks later. Ajit Doval, the national security adviser, made a trip to Saudi Arabia the same month, while Oil Minister Hardeep Puri visited Qatar to seek supplies.
Key actors and actions
| Entity | Action |
|---|---|
| Indian Oil Corp., BPCL, HPCL | Plan to reduce long-term Middle East contracts; seek spot and trading house deals |
| Government of India | Diplomatic outreach to Iran, UAE, Saudi Arabia, Qatar; building strategic reserves |
| Vitol Group | Indian Oil working toward setting up a trading desk in partnership with Vitol |
Outlook
Even before the war, Indian Oil was working toward setting up a trading desk in partnership with Vitol Group, a sign the country's largest state refiners are seeking to modernize procurement. The shift away from Middle East term contracts will require careful balancing to keep crude-purchasing costs in check while ensuring energy security. The committee studying strategic reserves will determine operating models and locations for energy supplies, the people said.
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