India Weighs Reviving Jet Fuel Fund as Delhi Prices Hit ₹137 a Litre

Delhi’s jet fuel price has climbed to ₹137 per litre (about ₹137,000 per kilolitre) from 1 October 2026, putting it roughly 25% above July levels. New Delhi is now weighing whether to revive a price stabilisation fund it approved in June, which airlines largely ignored.

IndiGo has lifted its fuel surcharges for the third time this year, and the Federation of Indian Airlines (FIA) wants the way India prices aviation turbine fuel (ATF) rewritten from scratch.

For energy investors outside India, this is more than a local airfare story. It shows how a refined-fuel shock tied to West Asia tensions can push risk onto state-owned refiners, the national budget and airline balance sheets all at once.

This piece covers what the government is weighing and why the earlier ₹10,000 crore scheme went unused. It also sets out where the risk sits for oil marketing companies (OMCs), the state-owned firms that buy, refine and sell fuel in India.

Why a ₹10,000 crore fund went unused, and what a revival would have to fix

Airlines facing their highest fuel costs in a decade were offered government-backed relief in June. They turned it down.

How the scheme was built

The Union Cabinet approved one-time budgetary support of up to ₹10,000 crore (₹100 billion, roughly US$1.2 billion at approximate exchange rates). The money was channelled through Indian Oil Corporation (IOC), Bharat Petroleum (BPCL) and Hindustan Petroleum (HPCL).

• Size: up to ₹10,000 crore in budgetary support
• Structure: interest-free advances to the three OMCs
• Mechanism: OMCs supply ATF at a stabilised price, and the government compensates them when the import parity price rises above a benchmark it sets
• Duration: up to 36 months, with annual reviews

Import parity price is the cost of importing the fuel, including international benchmark prices plus freight and other landing costs. CNBC TV18 described the scheme as effectively letting airlines buy fuel at a fixed price for up to three years.

India’s fuel price management system blends market-linked benchmarks with regulatory intervention, which explains why import parity pricing passes global moves through while the government still weighs selective relief.

Why airlines stayed away

According to Business Standard and CNBC TV18, carriers avoided the fund because of conditions attached to it, leaving uptake very low or nil. Business Standard reports the fund has now lapsed. Public coverage has not fully set out what those conditions were.

One possible explanation is that airlines did not want to be locked into fixed-price terms when market prices plus surcharges looked more flexible. That reading is plausible but unconfirmed.

On the pressure facing airlines Civil Aviation Minister K. Ram Mohan Naidu said on Tuesday, 6 October, that the West Asia crisis is placing a heavy burden on ATF prices and that talks with airlines and OMCs are underway.

A senior official said the government is examining a stabilisation fund, though no specifics were available. A fund that exists on paper but goes unused protects no one. Treat any revival announcement as meaningful only if it fixes the participation problem.

Airlines push back: surcharges now, formula reform next

While the policy debate drags on, airlines are passing costs to passengers in small steps. IndiGo raised its fuel surcharge on domestic and international flights from 6 October, its third increase of 2026, according to Skift.

Domestic surcharges rose by ₹100-350 depending on distance. They now stand at ₹375 for routes up to 500 km and ₹600 for 501-1,000 km, with the full domestic range spanning ₹375-1,300. IndiGo said costs are among the highest in a decade.

The size of the October jump varies by source. IndiGo put it above 14%, while Business Standard calculated about 13% (from ₹121 to ₹137).

Fuel makes up roughly 40% of an airline’s operating costs, according to PTI, and carriers have warned the government of route cuts. That is the real signal. Repeated small surcharges tell you airlines fear losing passengers, so further increases or route cuts look more likely than a single fare reset if prices stay high.

Global jet fuel volatility in 2026 has hit carriers well beyond India, and the pattern of repeated small surcharges mirrors how airlines elsewhere are passing through costs while hoping prices ease.

The bigger ask came in September. FIA, which represents Air India, IndiGo and SpiceJet, wrote to the ministry seeking cost-plus pricing. Under that model, ATF would be priced at actual supply cost plus a reasonable margin rather than on international benchmarks. FIA also wants these 2026 relief measures extended:

• A 25% ATF price cap over March pricing, from 1 April to 8 June
• VAT on ATF cut to 7% in Delhi and Maharashtra
• A 25% cut in domestic landing and parking charges from April to July

What a revival means for OMCs, the budget and Middle East risk

Who carries the price risk

Under import parity pricing, global jet fuel moves flow almost directly into Indian prices. A stabilisation fund does not stop that volatility. It moves part of it onto IOC, BPCL and HPCL, which supply at the stabilised price, and onto the budget, which compensates them.

Airlines elsewhere typically manage fuel risk through hedging, using derivatives and forward contracts. Some governments have offered temporary tax or airport-charge relief instead, closer to India’s VAT cuts than to a large fund. Reviving the fund carries three broad risks:

• Fiscal: up to ₹10,000 crore of public money used to shield airlines from global prices
• Design: an unattractive structure, including fixed-price terms, that airlines again decline
• Moral hazard: a standard economic criticism, not raised in the coverage, that budget support weakens incentives to hedge or improve fuel efficiency

What remains unknown

Verified figures for OMC under-recoveries (losses from selling below cost), current Brent prices and jet fuel crack spreads (the refining margin over crude) were not available as of 7 October 2026. FIA cites rupee depreciation, but no current level has been published in the reporting. That means no earnings impact can be quantified yet.

Strait of Hormuz exposure is not unique to India; European jet fuel supply chains carry a similar vulnerability, which shows how a single West Asia chokepoint can transmit refined-product stress across regions.

Policy choices, not just crude prices, will decide whether OMCs or airlines carry this shock. Wait for fund design details and the pricing-formula decision before drawing earnings conclusions.

Where the decision points sit as India weighs its next move

India has three paths open: a redesigned stabilisation fund, a shift to cost-plus pricing, or more tax and airport-charge relief. The government has committed to none of them.

Delhi has other levers beyond a fund, including export duties on ATF and diesel that keep refined product at home, though such measures shift the burden onto refiners rather than removing it.

Four signals matter most. Watch for any announced redesign of the fund that addresses airline conditions, and for the November ATF revision. FIA’s push to extend 2026 relief and any further IndiGo surcharge moves will show how much pain carriers can absorb.

If West Asia tensions persist, policy risk for Indian OMCs and airlines may rise alongside fuel prices. These outcomes remain speculative and subject to change as negotiations and markets develop.

This article is for informational purposes only and should not be considered financial advice. Investors should conduct their own research and consult with financial professionals before making investment decisions.