Impact of Global Instability on Fuel Prices and Aviation

The government finally pushed through the fuel price hikes on Friday. Petrol jumped to Rs 97, diesel to Rs 90, and CNG saw a hike of Rs 2. All of this happened while the Strait of Hormuz situation kept everyone on edge. The ongoing conflict between the US, Israel, and Iran means that global supply lines remain shaky.

That’s the backdrop.

Petrol and diesel prices went up by Rs 3.14 and Rs 3.11 per litre respectively. And CNG, naturally, got bumped up by Rs 2. It felt like a direct reaction to the instability brewing over the oil chokepoint.

But the real knot is tightening somewhere else now. Attention is starting to shift to aviation turbine fuel—jet fuel.

Why is that suddenly so important?

For airlines, ATF is a massive chunk of the bill. In India, it eats up about forty per cent of what an airline spends just running. When fuel prices spike globally, those associations are warning that this burden can jump to fifty-five or sixty per cent.

The way ATF prices work is different. They aren't set daily. Oil marketing companies adjust them monthly, based on what’s happening internationally. Last time they revised prices, back in May, public sector companies kept domestic flight costs steady. But they increased the prices for international travel. That’s where the real jump happened.

Indian Oil Corporation said this move was to shield domestic consumers from the West Asia conflict and the soaring international oil costs. A necessary move, they said.

The numbers are staggering. For international flights, the price for jet fuel shot up. It went from about $76.55 per kilolitre to $1,511.86 per kilolitre. Domestic carriers, though, got a bit of a reprieve, having already seen some hikes in April.

Remember that April hike? On April 1st, OMCs had already raised domestic jet fuel prices by Rs 15,000 per kilolitre in Delhi. But the full cost hit international operations much harder. It was a steeper leap.

This is where the airlines got nervous. They had been talking to the government, trying to make sense of the situation.

The Federation of Indian Airlines, which brings in IndiGo, Air India, and SpiceJet, argued that this whole "ad hoc" pricing system just created massive imbalances. Domestic and international operations were being treated completely differently.

They pushed for something concrete. They wanted those "crack spread bands" back. A mechanism that limits how much profit oil companies can squeeze out of jet fuel. They wanted fairness. Parity between what domestic and international carriers paid.

Even then, the carriers were clear. The fuel costs were making their networks unsustainable. It was too much pressure.

Now, with petrol, diesel, and CNG all being squeezed simultaneously because of the Hormuz crisis, the aviation industry can’t afford to wait around. The jet fuel situation is no longer an isolated problem.

The global reaction is already visible. It isn't just India feeling the squeeze.

Reports are coming in that jet fuel prices globally have exploded. We’re talking about barrel prices shooting from maybe $85 or $90 all the way up to $150 or $200 because of the Iran conflict.

That forces airlines everywhere to make tough calls. They’re cutting flights. Raising fares. Suspending future outlooks. Throwing in fuel surcharges everywhere.

Air India, for example, is reportedly looking at furloughing some non-technical staff. They might reduce flight capacity by more than twenty per cent for three months. That’s the kind of reality hitting the industry.

IndiGo had already started adding fuel charges this year. Extra fees for flights to the Middle East and Europe.

Globally, you see the effect everywhere. Air France-KLM, Lufthansa, Delta, United, Thai Airways, Qantas—they are all doing the same thing. Raising prices, cutting capacity, adjusting forecasts. The cost of flying is now a nightmare.

And the fear is that this burden won’t stop at the airline ticket. Passengers are going to feel it too. Warnings are coming that they might end up paying more through higher ticket prices and extra fees.

Why does the Strait of Hormuz matter so much, then?

It’s the choke point. It controls roughly one-fifth of all the world's oil and gas trade. It’s the single most critical maritime route globally.

If that passage gets blocked, the effect is immediate. Global crude supplies get disrupted. Shipping insurance costs skyrocket. Fuel markets go completely haywire.

The blockade fears linked to the Iran conflict already injected volatility into crude oil prices. It amplified the worry about inflation everywhere.

And India? They import most of their oil. So they are especially exposed to these disruptions.

There hasn't been any official announcement about another domestic ATF price hike yet. No fresh move. But the pressure is relentless. If the disruption in Hormuz continues, it will be incredibly difficult for the government to avoid another revision.

The government tried to manage this by protecting some domestic consumers while allowing selective hikes—like international jet fuel. But now, with retail fuel prices also rising, the aviation sector is just one more layer exposed to this relentless wave of fuel cost pressure. It’s getting harder to insulate anyone from the mess.