Indian Refiners Look to Cut Reliance on Middle East Crude after Iran War

State-owned oil refiners in India are looking to scale back their dependence on Middle Eastern crude after the Iran war disrupted regional energy flows, and are instead expected to lean more on spot-market buying and alternative supply sources, according to a Bloomberg report.

Refiners are reportedly working to cut the share of crude they procure from Middle Eastern producers through long-term supply agreements.

They aim to boost one-time spot purchases and secure agreements with multi-regional trading firms to guarantee continuous supply, even if a disruption occurs in any particular region.

Why the Rethink?

The conflict laid bare just how exposed India is on energy, from crude oil to LPG, with the country experiencing shortages, sharp price increases and significant losses across its refining sector during the disruption, the report added.

India sources close to 90% of its crude from abroad, importing an average of roughly 5 million barrels daily.

Public-sector refiners, Indian Oil, Bharat Petroleum and Hindustan Petroleum, typically cover about half their crude needs through long-term deals, sourcing the rest on the spot market.

Russian Oil Cushion

Indian refiners have managed to absorb some of the shock due to US sanctions waivers that permitted Russian oil purchases, which have allowed them to increase intake from that source, though this cushion is seen as a stopgap rather than a long-term fix.

Looking ahead, India is also eyeing fresh crude supply from producers such as Guyana, Brazil and the United States as part of a broader effort to diversify away from a single region, report said.

Behind-the-scenes Diplomacy

At the peak of the conflict, Indian officials were forced into intensive diplomatic outreach to keep fuel supplies moving. This included direct appeals to Iran's military to permit LPG tankers safe passage through the Strait of Hormuz, along with phone calls from senior Indian petroleum officials to their counterparts across Gulf nations to lock in continued supply.

Politically, External Affairs Minister S. Jaishankar visited the UAE in April, followed a few weeks later by Prime Minister Narendra Modi. Around the same period, National Security Adviser Ajit Doval travelled to Saudi Arabia, while Petroleum Minister Hardeep Puri went to Qatar to secure the uninterrupted flow of energy supplies to India.

A Strategic Recalibration

The report notes that a shift of this magnitude in India's crude sourcing would be among the most significant changes the country has made in years, forcing refiners to weigh energy security against the cost implications of moving away from established long-term contracts.

Even before the war, Indian Oil had already been setting up a trading desk in partnership with commodities giant Vitol Group, a move seen as part of a broader effort to modernise procurement at the country's largest state refiner.

Separately, India is also working on building strategic petroleum, LPG and liquified natural gas (LNG) reserves large enough to cover roughly a month's worth of domestic consumption, with a dedicated oil ministry panel now studying possible storage models and locations.