Flight cancellations remain a real possibility for Australia if the conflict in the Middle East continues, as airlines confront fuel shortages and sharply rising costs.

Speaking on Sky News on Tuesday, Environment Minister Murray Watt said cancellations 'can't be ruled out' if the conflict continues.

'We've already seen our domestic airlines make some changes around their flight routes. That's obviously at least in part a response to the global fuel shortage that we're seeing,' he said.

'It's why we've been saying we want to see this conflict resolved as quickly as possible. It's why we want to see the Strait of Hormuz opened as soon as possible.

'We've always said the longer this dispute goes on, the more difficult it will be for Australians and for everyone around the world in terms of meeting our fuel needs.

'Clearly the longer we see global fuel networks disrupted the way they have been, that's going to have consequences,' he said.

Australia remains at level two of the National Fuel Security Plan, designed to keep transport running smoothly.

If escalated to level three, fuel would be directed first to essential industries such as farming, freight and emergency services, with voluntary measures to limit fuel use introduced.

At level four, one national system would manage fuel so key users are supplied first.

The warning comes as Qantas and Virgin Australia both move to cut capacity and lift fares in response to surging fuel costs linked to the conflict.

Virgin earlier this month flagged fewer flights and higher fares across the second half of 2025–26 and into the next financial year.

'Given ongoing volatility, FY27 settings including capacity are under review,' the airline said in a statement to the ASX.

While Virgin said fuel supply remained secure in the short term, it warned prices had risen sharply.

'The price of jet fuel has been extremely volatile and has more than doubled since the end of February 2026,' it said.

Qantas announced similar measures a day earlier, flagging fare increases, domestic capacity cuts and changes to its international network.

The airline expects to spend up to $3.3 billion on jet fuel in the first half of 2025–26, saying price spikes linked to the Strait of Hormuz had added up to $800 million in costs.

As a result, Qantas and Jetstar will cut domestic capacity by about five per cent in May and June, with several routes already suspended, including Sydney to Busselton and services to Hamilton Island, Coffs Harbour, Mount Gambier and the Gold Coast.

University of Sydney Business School professor Rico Merkert said airlines may be forced to make further cuts if fuel availability tightens.

'Jet fuel availability will emerge as a serious constraint, potentially forcing airlines to cancel flights more broadly,' he told Daily Mail.

'If they have to cancel international flights and pause or cull some unviable regional flights, they need to compensate that loss in cash flow somewhere.'

Prime Minister Anthony Albanese warned that Australians would continue to feel the effects of the war long after any peace deal is reached.

'There is significant volatility, that's clear,' he said on Wednesday in Sydney.

'Fuel supply chains operate on long timeframes, often 30 days or more. Infrastructure damage, shipping bottlenecks, and regional instability all create risks.

'What we can control is our response, and that's why we are doing everything possible to secure supply, work diplomatically to support de‑escalation, and coordinate nationally.'

In Washington, President Donald Trump said he was 'highly unlikely' to renew a two‑week ceasefire with Iran due to expire at midnight GMT on Wednesday (10am Thursday, Sydney time).

'I'm not going to be rushed into making a bad deal,' Trump told Bloomberg News in a phone interview.

After peace negotiations between American and Iranian negotiators collapsed a week ago, President Trump declared the US Navy will stop 'any and all' ships from entering or leaving the key trade route, which until recently carried around one‑fifth of the world's oil supplies.

It comes after Iran charged a toll for ships wanting to travel through the Strait of Hormuz.

Trump has ordered the US Navy to find and intercept any vessel that has paid the toll.

'No one who pays an illegal toll will have safe passage on the high seas,' he said.