India’s crude oil import bill has soared since the Iran war choked Middle Eastern oil supply, raised benchmark crude prices, quadrupled freight rates, and boosted insurance on a single Strait of Hormuz voyage to never-before-seen highs.
India has been paying elevated prices to import Middle Eastern crude not only because of the spike in oil prices but also due to the surging costs to bring supply from the nearest region from which it can import crude.
The freight rates on the key route from Ras Tanura on Saudi Arabia’s Persian Gulf to India have soared by more than 400% since February 28, when the war began and Iran closed off the Strait of Hormuz. The rate for shipping crude on a VLCC from Ras Tanura to India surged by 411% to $4.34 a barrel in August, from just $0.85 per barrel before the war, according to data compiled by Financial Express.
The cost of shipping non-Middle Eastern cargoes has also soared amid a spike in demand for barrels not needing the Strait of Hormuz to reach India. Corpus Christi-India freight rates have jumped by 150% to $15.86 a barrel from $6.35 a barrel pre-war, while the cost to transport crude oil from Russia’s Ust-Luga port on the Baltic Sea on Suezmax tankers has more than doubled to $19.90 a barrel from $8.40 per barrel in February.
War-risk insurance has also jumped, from a quarter of a million dollars for a Hormuz voyage before the war, to up to $10 million for a single passage through the chokepoint now.
The soaring shipping and war-risk insurance costs add to already high prices of India’s imports, with Brent Crude prices up about 25% since the Iran war began, spiking into the $100s on several occasions.
India paid 60% more for crude oil imports in the April-June quarter compared to the same period last year, as the surge in oil prices could not be offset by slightly lower import volumes. The rise continued into the beginning of the third quarter, with the July import bill 41% higher than a year earlier.
