India has unveiled a INR 100 billion ($1.05 billion) fuel stabilisation fund to insulate its domestic airlines from volatile jet fuel prices, a direct response to ongoing disruptions in the Middle East that have rattled global energy markets. The fund will provide interest-free advances to oil marketing companies, enabling them to cap jet fuel prices for carriers such as IndiGo, Air India, and SpiceJet.
The move comes as global analysts caution that recent signs of relief in the jet fuel market may prove temporary. The crack spread between jet fuel and Brent crude in Europe has narrowed sharply from nearly $1,000 per ton in early April to under $400 per ton—a decline of roughly 60%. However, Commerzbank commodity analyst Barbara Lambrecht warns that this easing could be premature, with the peak summer travel season still ahead.
Factors Behind the Temporary Calm
Lambrecht attributes the recent narrowing to three key factors: European refineries shifting production toward jet fuel, increased U.S. exports to Europe, and higher supplies from Nigeria’s Dangote refinery. Jet fuel inventories in the Amsterdam-Rotterdam-Antwerp (ARA) region have stabilised since early May, helping to ease immediate supply concerns. Yet, she cautions that inventories are expected to decline again, and U.S. exports may slow as European prices become less attractive.
Renewed Pressure Expected in Q3
Analysts anticipate the jet fuel crack spread will widen again in the third quarter as inventories fall and seasonal demand peaks. The EU’s Oil Coordination Group has also flagged rising tensions in the jet fuel segment. Lambrecht notes that while inventories have not fallen further since early May, a gradual normalisation is only expected in the medium term once Gulf exports resume. In the broader gas oil market, crack spreads remain elevated at around $45 per barrel and are forecast to stay above $40 through the end of 2026.
India’s intervention is a proactive step to shield its aviation sector, where fuel accounts for 40-60% of operating costs. Unchecked price rises could force capacity cuts and higher fares. The fund will maintain jet fuel prices at moderate levels, currently capped significantly below market rates at major Indian airports. This follows earlier pleas from airlines and comes amid broader global energy uncertainty linked to the Iran conflict.
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. For now, India’s $1 billion buffer provides vital breathing room for its airlines amid persistent global fuel market fragility.
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This article is for informational purposes only and does not constitute financial advice.
