The global aviation industry is facing significant disruption to summer holiday travel plans due to a severe shortage of jet fuel, exacerbated by ongoing geopolitical conflict in the Middle East. This situation has driven up prices and threatens supply lines, prompting concerns about potential physical shortages in key regions in the coming months if the Strait of Hormuz does not reopen soon. Many airlines have already increased ticket prices and reduced flight capacity in response to the rising cost of flying. The crisis highlights the profound vulnerability of the UK and Europe, the largest consumers of jet fuel globally, to disruptions originating from the Middle East.
The Gulf region typically serves as a major exporter of jet fuel, accounting for approximately 20% of the fuel traded internationally on a daily basis. Europe, in particular, relies heavily on these imports, with more than half of its typical jet fuel supply originating from the Gulf due to insufficient refining capacity within the continent. However, the closure of the Strait of Hormuz for the past eight weeks has severed these vital supply routes, forcing airlines and fuel distributors to scramble for alternative sources. This increased demand for limited supplies has sent prices soaring. In late February, prior to the initial US and Israeli airstrikes, jet fuel was trading at $831 per tonne in Europe. By early April, the price had touched $1838 per tonne, representing an increase of over 120%. Although prices have since receded, they have remained consistently above $1500 per tonne, placing immense financial pressure on the aviation sector.
Jet fuel, a highly refined form of kerosene with specialized additives, is primarily produced through the fractional distillation of crude oil. The availability of refining capacity is a critical determinant of jet fuel supply. The disruption in output from the Gulf has disproportionately impacted jet fuel prices compared to crude oil prices. Amaar Khan, head of jet fuel pricing at Argus Media, explained that Europe has experienced five refinery closures in the last two-and-a-bit years while simultaneously witnessing year-on-year increases in jet fuel demand. This imbalance between weakening supply and growing demand has created a significant market deficit. The United Kingdom is especially susceptible to these supply shocks, as imports constitute 65% of its total jet fuel requirements. The closure of two British refineries in recent years has further reduced domestic refining capacity, leaving only four operational facilities within the country.
For airlines, fuel represents a substantial operating expense, typically accounting for 25% to 30% of their total costs, according to the International Air Transport Association (IATA). Consequently, fluctuations in fuel prices have a direct and significant impact on airline profitability. Many European and Asian carriers employ hedging strategies to mitigate the risks associated with volatile fuel prices. These strategies involve purchasing fuel or related oil products at a fixed or capped price in advance. However, hedging does not provide complete insulation from price shocks. EasyJet, for example, had hedged 80% of its fuel supply for the first half of the year at $717 per tonne. Nevertheless, securing the remaining 20% of its fuel at prevailing market rates in March alone incurred an additional cost of £25 million. Conversely, some airlines, particularly in the United States, have opted against extensive hedging in recent years, a strategy that can prove costly when fuel prices decline. This approach has left them particularly exposed to the current crisis, forcing them to absorb the full impact of the price surge.
In response to the escalating fuel costs and supply uncertainties, several airlines have already begun to pare back their summer flight schedules. Air France KLM, Air Canada, and SAS are among the carriers that have announced reductions in their planned operations. The German airline group Lufthansa stated earlier this month that it would eliminate 20,000 flights from its schedule between now and the end of October. Jonathan Hinkles, former chief executive of Loganair and current CEO of Skybus, commented that routes which were previously only marginally profitable are now experiencing significant financial losses due to the elevated fuel expenses. This situation is forcing airlines to make difficult decisions regarding route viability and capacity deployment.
The surge in fuel prices has inevitably translated into higher airfares for consumers. This effect is most pronounced on long-haul routes, particularly those historically served by major Gulf carriers. A substantial reduction in capacity on these routes, combined with the high cost of jet fuel, has led to a dramatic increase in ticket prices. Research from the consultancy Teneo indicates that a flight from London to Melbourne in June is now 76% more expensive than it was in the previous year. United Airlines, a prominent US carrier, has been particularly assertive in passing on increased fuel costs to passengers. Its CEO, Scott Kirby, informed investors last month that the company intends to take "whatever it takes to recover 100% of the increase in jet fuel prices as quickly as possible." Similarly, IAG, the parent company of British Airways, Iberia, Aer Lingus, Vueling, and Level, has cautioned travelers about impending fare hikes. Virgin Atlantic has already implemented surcharges, ranging from £50 for a return economy class ticket to £360 for a business class fare, reflecting the direct impact of fuel costs on ticket pricing.
On short-haul routes within Europe, the impact on airfares has been less pronounced thus far. József Váradi, CEO of Wizz Air, noted in late April that prices on these routes have actually seen a decline as airlines attempt to stimulate demand among potentially hesitant travelers. He explained that consumer uncertainty about future developments is leading to a degree of hesitancy, but this can be counteracted through price reductions. "Simply, people don't know what's going to happen… so there is a level of hesitancy," Váradi stated. "But to be honest, that level of hesitancy can be overcome through price stimulation. So, short term, you are actually seeing prices dropping." John Strickland of JLS Consulting suggests that well-hedged low-cost carriers may gain a competitive advantage over rivals who have not secured fuel in advance, potentially allowing them to exert pressure on less financially secure competitors.
Beyond the immediate concern of rising fuel prices, a more pressing issue for Europe is the genuine risk of physical jet fuel shortages. In mid-April, the head of the International Energy Agency (IEA), an advisory body to 32 member governments on energy supply and security, warned that Europe possessed "maybe six weeks of jet fuel left." A detailed IEA analysis indicated that while imports from the United States had increased, the additional fuel arriving from across the Atlantic was only sufficient to replace slightly more than half of the lost supplies from the Middle East. The agency cautioned that if this trend persisted, fuel reserves could reach critical levels by June, potentially leading to "physical shortages may emerge at select airports, resulting in flight cancellations and demand destruction."
While Europe's dependence on Middle Eastern sources is significant, it does receive jet fuel from other regions, including East Asia (particularly South Korea and Taiwan), the United States, and Nigeria. However, refineries in East Asia rely heavily on crude oil supplies from the Middle East, which have been curtailed by the ongoing conflict, thereby limiting their jet fuel export capacity. US imports, though growing, are constrained by differences in fuel specifications. The US aviation market primarily uses Jet A, which has a higher freezing point than Jet A1, the standard used in Europe. Not all US refineries capable of producing jet fuel can currently produce Jet A1, restricting the volume that can be shipped to Europe. Furthermore, India, a significant supplier until last year, has seen its jet fuel exports to Europe diminish substantially. This is largely due to the EU's import ban on refined products derived from Russian crude oil, which has made the logistics and economics of supplying European markets too complex. "In practice, what that led to was the removal of Indian jet fuel from the European market en masse. It just became too complicated," noted Amaar Khan of Argus Media.
Consequently, jet fuel reserves across Europe are dwindling. Stocks at the key Amsterdam-Rotterdam-Antwerp (ARA) hub are reportedly at their lowest level in six years, according to the procurement intelligence firm Beroe. Before the conflict, Europe as a whole had approximately 37 days' supply available. This figure is now likely to have dropped to 30 days, the firm states. The critical point at which the IEA believes some airports would run out of fuel is 23 days. Beroe's analysis suggests there is a "high risk of shortages if Hormuz disruption continues." Mr Khan agrees, stating, "I think there is a huge risk." He points out that the effects of any shortage would not be felt equally, with "larger demand hubs, big airports are probably going to be prioritised over smaller demand hubs."
Wizz Air's CEO József Váradi remains optimistic that extra supplies will be found, citing "a lot of room to be creative" when prices are so high. "I don't think we're going to run out of fuel," he told reporters in April. However, he agreed that shortages would not be felt uniformly across Europe. "This is not going to be like every single European airport is going to be hit on the same minute of the same hour. This is going to be a mess," he explained. "There are multiple suppliers, and multiple suppliers might be in different positions, so you may not get jet fuel from one guy, but you may get jet fuel from another guy. But the ultimate measure, obviously, is that if there is really no fuel anywhere, then you will have to cancel [flights]."
While most airlines publicly appear sanguine about the fuel supply situation, intense lobbying is occurring behind the scenes in London and Brussels for measures to mitigate the impact of both high prices and potential shortages. In the UK, the government is preparing several concessions. These include allowing airlines to cancel flights at busy airports like Heathrow well in advance, without the risk of losing valuable take-off and landing slots. Under normal circumstances, airlines lose the right to use slots if they do not use them 80% of the time in a given season, which can encourage them to fly half-empty planes to retain these valuable assets. The new plan would make it easier for airlines to trim their schedules in advance, rather than being forced to cancel flights at the last minute. For example, an airline with multiple flights to the same destination on the same day could cut one or two services without penalty.
Refineries have also been asked to maximise jet fuel supply. The government is exploring the possibility of allowing imports of Jet A from the United States, though this would depend on the viability of existing infrastructure. In Brussels, the European Commission is preparing similar steps and has gone further in some areas. It has already made it clear that cancellations and severe delays due to jet fuel shortages will qualify as "exceptional circumstances." Under EU rules, this will allow airlines to avoid paying financial compensation to passengers, although they will still be entitled to reimbursement or an alternative flight. The EU is also likely to ease regulatory requirements related to fuel specifications to facilitate imports.
