Rising tanker freight, war-risk insurance premiums and spot fuel purchases are emerging as the first cost pressure points for India as vessel movement through the Strait of Hormuz turns defensive amid renewed West Asia tensions.
Tanker spot freight rates for the region can jump 50-80% within weeks due to vessel shortages, while war-risk insurance premiums can rise 200-300%, adding $200,000-500,000 per VLCC voyage, said Manas Majumdar, Leader Oil & Gas, Fuels & Resources, PwC India.
These maritime costs could add $2-3 per barrel to India’s landed crude cost, translating into a ₹2-3 per litre retail impact if oil marketing company margins are maintained, he said. Costlier spot LNG could also raise domestic urea costs, increasing the fertiliser subsidy burden by around ₹10,000 crore every month that higher prices persist.
Indian refiners are also buying LPG and liquefied natural gas in the spot market amid concerns of further escalation and uncertainty over Strait operations, said people aware of the development. Spot LPG prices are currently as high as $600 per tonne. India is procuring more LPG from the US, while spot LNG is being sourced from the US, Angola and Algeria. Crude oil procurement arrangements remain unchanged from the position before the Iran-US MoU on June 17.
Queries sent to HPCL, IOCL and BPCL remained unanswered till press time.
The cost pressure comes as confirmed crossings through the Strait of Hormuz fell around 52% week on week over July 10-12, according to MarineTraffic data. Total crossings declined from 30 on July 8 to 22 on July 9, 19 on July 10, 24 on July 11 and 14 on July 12.
Traffic has also shifted towards defensive routing. Use of Iranian and dark routes increased, while activity on the IMO and Omani corridors fell to minimal levels. No new IMO-confirmed physical attacks have been reported since June 27, but renewed US-Iran tensions and recent IRGC warnings continue to weigh on shipping confidence.
Majumdar said if retaliatory US-Iran air strikes continue or escalate, “hardly any ships will be moving across the Strait” and the market could return to the stress seen a couple of months ago.
“We can expect Brent to surge to $100/bbl level in a few days,” Majumdar said, adding that gas prices would also rise because it is a global market.
India’s vulnerability remains high. Majumdar said India imports around 90% of its crude, more than 50% of its gas/LNG and close to 60% of its LPG. He said India has diversified supplies since the earlier Iran crisis, sourcing LNG from the US, Australia, Africa, Russia and spot markets, and LPG cargoes from the US, Africa and Norway, though at higher costs and with additional transit timelines of 10-20 days.
“Given this diversification, India would not be as challenged on sourcing as earlier if Strait of Hormuz closes up again, however prices would go up rapidly by 20-30%,” Majumdar said.
Pankaj Srivastava, Senior Vice President, Commodities Market-Oil, Rystad Energy, said the current situation is materially less severe than the March-April disruption, when Strait of Hormuz crude flows fell to nearly 1-2 million barrels per day and Brent briefly surged toward $130 per barrel.
After the ceasefire, flows recovered to around 6-7 million barrels per day, with Brent stabilising near $70 per barrel. After the July 8 ceasefire breakdown, flows declined to about 4 million barrels per day, while Brent rose only to $79-80 per barrel.
“The relatively muted price response suggests that major importing countries have already secured crude supplies for the next couple of months,” Srivastava said.
Prashant Vasisht, Senior Vice President and Co-Group Head, Corporate Ratings, ICRA, said LPG and LNG supplies may be available from alternate geographies in case of a Hormuz disruption, but prices are likely to remain elevated due to the risk to around 20% of LNG supplies passing through the Strait.
YES Securities expects Brent to remain broadly anchored around $70-75 per barrel through 2026, with a $10-15 per barrel geopolitical risk premium.
Source: The Financial Express
