Freight shock pushes West Asia crude landed cost for India to $120/barrel

Indian refiners face rising landed costs of West Asian crude at $120 per barrel due to surging tanker freight rates and shipping disruptions that are squeezing refining margins by $10-15 a barrel. Freight hikes from Gulf routes and war-risk concerns are major contributors to increased costs.

"Freight has become a major factor in refinery margins. Market participants tend to focus on benchmark crude prices when calculating refined product crack spreads, but freight absorbs a substantial part of those implied margins," Abu Dhabi-based commodity analyst Natalia Katona said. "I would estimate that freight costs are now reducing refining margins by around $10-15/bbl compared with what calculations based solely on crude prices would suggest."

Katona said Dubai crude is trading at around $110/bbl, putting the average landed cost of West Asian crude in India at around $120/bbl. The pressure comes with crude prices remaining elevated. The Indian crude basket stood at $119.39/bbl on October 15, while averaging $122.01/bbl so far in October.

For cargoes from Oman and Fujairah (UAE), very large crude carrier (VLCC) freight to the country's west coast is currently $6-7/bbl, against $2.6/bbl before the war in Q1 2026. Freight to the Asia-Pacific (APAC) has climbed to $30/bbl, from $6.30 immediately before the war and $2.5 in Q3 2025.

The rise is steeper for oil loaded from ports inside the Gulf and moving through the Strait of Hormuz. Excluding war-risk insurance, VLCC freight to India's west coast has surged to $16/barrel, from $2.5 immediately before the war and $1.20 in Q3 2025. The corresponding APAC rate is now $37/bbl, against $6.60 before the war and $3 in Q3 2025.

"So India is not paying higher freight rates than China on these routes. The only case in which India could pay more than China is for barrels shipped from Russia's Far East," Katona said.

A JP Morgan note said freight rates on key West Asian crude routes and Atlantic deliveries doubled in September from already elevated August levels. Shipping a VLCC cargo from West Asia to China has surged to around $35/barrel from about $3/barrel in early 2026, while US Gulf coast-China freight has reached $41/barrel from $6.

"What began as a shortage of VLCC capacity in West Asia has therefore become a much broader tightening across the global tanker fleet," JP Morgan said.

The squeeze reflects ships being tied up for longer. Of the global fleet of 923 VLCCs, 766 are in active use, while around 124 Iranian VLCCs, or roughly 13% of the fleet, remain effectively unavailable to much of the international market due to US sanctions. Moving West Asian crude now requires an additional 15 VLCCs, 13 Suezmaxes and 10 Aframaxes compared with the 2025 average.

Katona estimated 15-20% of the global VLCC fleet is being tied up in and around the Gulf as vessels shuttle crude to ship-to-ship transfer points, wait for incoming tankers or take longer routes. Saudi crude loaded from Yanbu is also being shipped around Africa, while Asian buyers are sourcing more North and Latin American barrels.

Manas Majumdar, partner and leader, oil & gas fuels & resources, PwC India, said VLCC freight to parts of Asia has risen around 50% from $1.3/bbl to $2.2/bbl. On the benchmark cited by him, India freight is around $0.8-0.9/bbl, with China about a dollar higher.

Majumdar said tanker rates are likely to remain elevated as disruption extends from Hormuz to the Red Sea and India increasingly sources crude from longer routes including Russia, Africa and the Americas.

Katona said the biggest risk remains Hormuz. "For sure, Hormuz remains the biggest risk for any crude producers and buyers," she said, adding that as traffic has increased, more tankers have been hit and attacks are increasingly resulting in sinkings.