India deploys $1B shield as jet fuel tensions likely to linger

India has announced an INR 100 billion ($1.05 billion) fuel stabilisation fund to protect its airlines from volatile jet fuel prices triggered by the ongoing Middle East conflict. 

The move comes as global analysts warn that recent signs of relief in the jet fuel market may prove short-lived, with the peak summer travel season still ahead.

The Indian government will provide interest-free advances to oil marketing companies to cap jet fuel prices for domestic airlines. 

This intervention aims to prevent sharp fare hikes and support the sector, which has been battered by elevated costs since disruptions began in the Strait of Hormuz.

Temporary calm in jet fuel spreads

In Europe, the price differential between jet fuel and Brent crude has narrowed significantly.

At the beginning of April, the crack spread stood at nearly $1,000 per ton due to looming supply shortages. It has since fallen to just under $400 per ton, a 60% reduction.

Barbara Lambrecht, commodity analyst at Commerzbank AG, identified three main factors behind the easing: European refineries shifting production toward jet fuel, increased US exports to Europe, and higher supplies from Nigeria’s Dangote refinery. 

Jet fuel inventories in the Amsterdam-Rotterdam-Antwerp (ARA) region have also stabilised since early May. However, Lambrecht cautioned that this relief could be premature. 

Risk of renewed pressure in Q3

Analysts expect the jet fuel crack spread to widen again in the third quarter as inventories decline and US exports potentially slow with less attractive European prices. 

Lambrecht added that the EU’s Oil Coordination Group also anticipates rising tensions, particularly in the jet fuel segment.

“In any case, the fact is that jet fuel inventories in the Amsterdam, Rotterdam, Antwerp (ARA) region have not fallen further since early May, thereby also helping to ease concerns,” she said, while forecasting gradual normalisation only in the medium term once Gulf exports resume.

In the broader gas oil market, crack spreads have remained elevated at around $45 per barrel and are expected to stay above $40 through the end of 2026.

India acts to protect aviation sector

India’s $1 billion package is a proactive step to cushion domestic carriers like IndiGo, Air India, and SpiceJet from global price shocks. 

Fuel typically accounts for 40-60% of airline operating costs, and unchecked rises could force further capacity cuts and higher fares for passengers.

The fund will help maintain jet fuel prices at moderate levels, currently capped significantly below market rates at major Indian airports.

This intervention follows earlier pleas from airlines and comes amid the broader global energy uncertainty caused by the Iran conflict.

Global context and outlook

The Middle East disruptions continue to create volatility across oil products.

While diplomatic efforts offer some hope for reopening the Strait of Hormuz, analysts remain wary of prolonged uncertainty.

For India, one of the world’s fastest-growing aviation markets, shielding airlines is critical to preserving jobs, connectivity, and tourism recovery. 

The government’s response reflects the strategic importance of aviation to the economy.

However, with the busy monsoon and festive travel seasons approaching, both global analysts and Indian authorities recognise that structural solutions, such as diversified fuel sourcing and accelerated sustainable aviation fuel adoption, will be needed beyond short-term fiscal support.

The coming months will test whether the current easing in jet fuel markets holds or if renewed supply pressures return, potentially requiring further policy interventions worldwide. 

For now, India’s $1 billion buffer provides vital breathing room for its airlines amid persistent global fuel market fragility.