India faces a prolonged crude shipping cost shock, with freight rates on key supply routes rising 137-411% since late February and war-risk insurance for a single Strait of Hormuz voyage climbing to as high as $7.5-10 million, adding to the cost of imported oil at a time when the country’s energy import bill and refinery finances are already under pressure.
The sharpest increase has been on the Ras Tanura-India route, where freight for Saudi crude on Very Large Crude Carriers (VLCCs) is estimated at $4.34 a barrel in August, up 411% from $0.85 in late February. Freight from Corpus Christi in the US has risen 150% to $15.86 a barrel from $6.35, while transportation from Russia’s Ust-Luga on Suezmax tankers has increased 137% to $19.90 a barrel from $8.40.
The freight escalation comes on top of a steep rise in crude acquisition costs. India’s crude oil import bill surged 56.5% year-on-year to $63.4 billion during April-July FY27, even as volumes rose just 0.5% to 81.9 million tonne, or about 600 million barrel. The average landed crude price increased to around $106 a barrel from $68 a year earlier.
The combined impact of higher crude, freight and insurance costs is particularly significant for domestic refiners. State-run IndianOil, Bharat Petroleum and Hindustan Petroleum reported combined net losses of ₹18,149 crore in the June quarter, a sharp reversal from their combined net profit of ₹16,184 crore a year earlier.
India’s net oil and gas import bill rose 43.4% to $57.8 billion during April-July from $40.3 billion a year ago, while crude import dependence remained at 88.3%. LNG import volumes increased 5.3% to 11,867 million standard cubic metres, but their value jumped 24.4% to $5.6 billion.
Shipping insurance has emerged as another major cost layer. “War risk insurance to transit the Strait of Hormuz was around 0.25% of hull value prior to the war, and is now reported anywhere in the 7-10% range, if you are able to secure coverage at all,” said Erik Grundt, senior analyst at Rystad Energy.
This translates into an increase from roughly $250,000 before the West Asia conflict to $7.5-10 million for a single voyage, Grundt said. He warned that freight rates remain highly volatile and, in some cases, represent paper values given the limited number of cargoes loading in the Arabian Gulf.
The tanker market was already at a six-year high before the Iran war, driven by strong demand and ownership concentration. The 10 largest operators controlled 57% of the VLCC fleet, allowing owners to maintain pricing power. When Iran closed the Strait of Hormuz on February 28, war-risk and rerouting premiums were added to an already tight freight market.
At various points, around 10% of the mainstream VLCC fleet was trapped inside the Gulf, immediately shrinking available tonnage and sending rates to record levels.
A mid-June ceasefire briefly reopened the Strait and cargo volumes surged, but the market then shifted from scarcity to vessel-positioning pressures. Owners had already shifted around 60 vessels towards the Atlantic to capture rising Western crude exports. Once Hormuz reopened, vessels returned faster than cargo volumes could absorb them, bringing down rates sharply by early July.
The respite did not last. Even at their calmest, freight rates failed to return fully to pre-war levels. When the ceasefire broke down later in July, the market had little spare capacity to absorb another shock, pushing rates back towards their earlier war highs by mid-August.
“The freight rate outlook is thoroughly linked to the state of the Strait of Hormuz,” Grundt said.
The 60-day US-Iran negotiation window has expired without a broader settlement, and vessel traffic remains constrained. Rystad’s base case assumes a protracted stalemate, with Hormuz traffic around 3 million barrels per day (bpd) for another two-three months before recovering towards 6 million bpd by year-end and around 12 million bpd by March.
Alternative export corridors are expected to play a much larger role. Saudi flows through Yanbu could rise towards 4.5 million bpd by the first quarter of 2027, taking combined Hormuz and Yanbu flows to around 16.5 million bpd by March.
Even a geopolitical easing may not immediately restore freight rates to pre-conflict levels. Tanker capacity is expected to outpace demand by more than 4 million bpd in 2027, eventually putting downward pressure on rates. The orderbook-to-fleet ratio stands at around 35% for VLCCs and 45% for the mainstream tanker fleet.
However, ownership concentration and changing shipping patterns could limit the decline. ADNOC’s shuttle system, under which cargoes make short Hormuz crossings before being transferred to vessels off Fujairah and Sohar, is expected to remain part of the trade, while Saudi Arabia could adopt a similar model. Such arrangements add transit time and vessel legs, increasing tanker demand for every barrel moved.
For India, this means a recovery in physical crude flows may not immediately translate into lower landed costs. Elevated freight and insurance premiums could continue to amplify the impact of high crude prices on the import bill and refinery economics, even as supply conditions gradually improve.