Jet Fuel's Rising Costs and Supply Risks
At any major airport worldwide, the distinctive scent of jet fuel—a slightly sweet, oily aroma reminiscent of old workshops or antique paraffin lamps—is a familiar part of the travel experience, alongside lukewarm coffee and passport control queues. Recently, this scent has become associated with a sharp increase in cost. Since the onset of the Middle East conflict, jet fuel prices on international markets have surged significantly. Concerns are mounting that if the Strait of Hormuz remains closed, physical shortages could arise in certain regions in the coming months.
Many airlines have already increased ticket prices due to higher flying costs and have reduced capacity. Without additional fuel supplies, further disruptions and cancellations may occur during the peak summer holiday season.
This crisis highlights the vulnerability of the UK aviation sector—Europe's largest consumer of jet fuel—to Middle Eastern supply disruptions. This article explores the potential impacts on summer travel and possible mitigation strategies.
A scramble for jet fuel
The Gulf region produces significantly more jet fuel than it consumes, making it a major exporter, responsible for approximately 20% of daily international jet fuel trade. Europe is a key importer, relying heavily on Gulf supplies due to limited refining capacity, with over half of its jet fuel imports typically sourced from this region.
However, the Strait of Hormuz has been blocked for eight weeks, halting these supplies and triggering a scramble for fuel from other producers. This scarcity has driven prices sharply upward.
In Europe, jet fuel prices were $831 per tonne in late February, before the first US and Israeli airstrikes. By early April, prices had soared to $1,838 per tonne, an increase exceeding 120%. Although prices have since declined somewhat, they have consistently remained above $1,500.
A lack of refining capacity
Jet fuel is a highly refined kerosene variant with specialized additives, typically produced through fractional distillation of crude oil. Supply depends heavily on refining capacity, and the loss of Gulf output has caused jet fuel prices to rise more steeply than crude oil prices.
"We have had five refinery closures in the last two-and a-bit years in Europe, whereas jet fuel demand has been rising year on year,"explains Amaar Khan, head of jet fuel pricing at Argus Media.
"So, we see weaker supply, greater demand."
The UK is particularly reliant on imports, which constitute 65% of its jet fuel needs. Two British refineries have closed recently, leaving only four operational in the country.
Pared-back schedules and rising fares
Fuel represents a significant portion of airline operating costs, typically 25-30%, according to the International Air Transport Association (IATA). Consequently, rising fuel prices substantially impact airline profitability.
European and Asian airlines often use hedging strategies to limit exposure to price increases by purchasing fuel or related products at fixed or capped prices in advance. However, these measures do not provide complete protection. For example, EasyJet hedged 80% of its fuel supply for the first half of the year at $717 per tonne but incurred an additional £25 million cost in March due to purchasing the remainder at current prices.
In contrast, some US carriers have avoided hedging in recent years to avoid losses when prices fall, leaving them vulnerable to current price spikes.
Several airlines, including Air France KLM, Air Canada, and SAS, have already reduced their summer schedules. Lufthansa announced it would cancel 20,000 flights between now and the end of October.
"If a route was marginally profitable before this crisis came along, it is now firmly under water and losing money in a big way,"says Jonathan Hinkles, former CEO of regional carrier Loganair and current CEO of Skybus.
Fares have increased, especially on long-haul routes typically served by major Gulf carriers, where reduced capacity and high fuel prices have driven ticket costs up significantly. For instance, a London to Melbourne flight in June now costs 76% more than last year, according to consultancy Teneo.
United Airlines has been explicit about passing fuel cost increases to passengers. CEO Scott Kirby stated to investors that the company would do
"whatever it takes to recover 100% of the increase in jet fuel prices as quickly as possible".
IAG, owner of British Airways, Iberia, Aer Lingus, Vueling, and Level, has also warned of higher fares, while Virgin Atlantic has introduced surcharges ranging from £50 on return economy tickets to £360 for business class.
Conversely, short-haul European routes have seen more muted fare impacts. Wizz Air CEO József Váradi noted that prices have decreased as airlines attempt to encourage hesitant travelers.
"Simply, people don't know what's going to happen… so there is a level of hesitancy,"he said in late April.
"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 observed that well-hedged low-cost carriers have an advantage over competitors less protected against price rises.
"They will look to put pressure on other people who are not in such a healthy position,"he said.
Are we likely to run out of jet fuel?
While fuel prices have dominated airline concerns since the Iran conflict began, there is a growing worry in Europe about actual fuel shortages.
In mid-April, the International Energy Agency (IEA) head warned Europe had
"maybe six weeks of jet fuel left".
An IEA analysis noted increased imports from the US, but these only replace a little over half of the lost Middle Eastern supplies. If this trend continues, reserves could reach critical levels by June, potentially causing
"physical shortages at select airports, resulting in flight cancellations and demand destruction".
Europe also receives jet fuel from East Asia (notably South Korea and Taiwan), the US, and Nigeria. However, East Asian refineries depend heavily on Middle Eastern crude oil, which has been restricted due to the conflict, limiting jet fuel exports.
US imports are constrained by differing fuel specifications. The US uses Jet A fuel, which has a higher freezing point than the Jet A1 used in Europe. Not all US refineries can produce Jet A1, limiting transatlantic shipments.
India was previously a major supplier, but the EU's import ban on refined products from Russian crude oil has effectively removed Indian jet fuel from the European market.
"In practice, what that led to was the removal of Indian jet fuel from the European market en masse. It just became too complicated,"explains Amaar Khan of Argus Media.
Consequently, reserves have declined. Stocks at the Amsterdam-Rotterdam-Antwerp hub are at their lowest in six years, according to procurement intelligence firm Beroe.
Before the conflict, Europe had about 37 days' supply; now it is estimated at 30 days. The IEA considers 23 days a critical threshold below which some airports might run out of fuel.
Beroe's analysis indicates a
"high risk of shortages if Hormuz disruption continues."Mr. Khan concurs, noting that shortages would not affect all airports equally.
"Larger demand hubs, big airports are probably going to be prioritised over smaller demand hubs,"he said.
Wizz Air CEO József Váradi expressed optimism that additional supplies would be found, citing
"a lot of room to be creative"given high prices.
"I don't think we're going to run out of fuel,"he said, while acknowledging uneven impacts 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]."
What could be done about it?
Publicly, airlines appear calm regarding fuel supply, but intense lobbying is underway in London and Brussels to mitigate high prices and potential shortages.
The UK government is preparing concessions, including allowing airlines to cancel flights at busy airports like Heathrow well in advance without losing valuable take-off and landing slots.
Normally, airlines must use slots at least 80% of the time in a season or risk losing them the following year, which can lead to flying half-empty planes to retain slots worth millions.
The new plan would enable airlines to reduce schedules proactively, avoiding last-minute cancellations and penalties. For example, an airline with multiple daily flights to the same destination could cut some services without losing slots.
Refineries have been asked to maximize jet fuel production, and the government is exploring allowing imports of Jet A1 from the US, contingent on infrastructure compatibility.
In Brussels, the European Commission is preparing similar measures and has already declared that cancellations and severe delays due to jet fuel shortages will be considered "exceptional circumstances." This classification allows airlines to avoid paying financial compensation to passengers, though reimbursement or alternative flights remain mandatory.
The Commission is also likely to relax rules on "tankering," where aircraft depart with extra fuel from cheaper airports to reduce refueling costs at more expensive destinations. While cost-saving, tankering increases fuel burn due to heavier aircraft weight.
These measures address symptoms rather than root causes of jet fuel shortages.
Structural changes
Addressing the UK's dependence on imports is more complex. The country had 18 refineries in the 1970s; now only four remain.
"I think there is probably a point in saying, actually, do we need more resilience from a homegrown perspective in terms of our capacity in the UK to be able to refine a higher proportion of our fuel?"says Jonathan Hinkles, CEO of Skybus.
Increasing jet fuel output is challenging. Although refineries have been asked to prioritize jet fuel, Amaar Khan notes,
"this doesn't happen overnight, and doesn't result in a significant increase in jet fuel output."
One potential solution is to expand local production of Sustainable Aviation Fuel (SAF), a synthetic fuel derived from waste materials like used cooking oil and agricultural residues, dedicated energy crops, or renewable energy converting water and carbon dioxide into e-fuels.
SAF has mainly been promoted for its environmental benefits, which vary depending on production methods. Generally, SAF combustion emits less carbon than fossil fuels. Both the UK and EU have mandates to increase SAF usage significantly over the next 25 years.
However, SAF production is still nascent, with limited availability. Much of the current supply comes from East Asia, and SAF is expensive, typically costing over $1,000 per tonne more than conventional fuel.
Hinkles believes overcoming these challenges could reduce reliance on foreign imports.
"It really becomes a question of; can you actually get SAF? Can we scale up production of SAF at a meaningful rate in the UK or Europe to take over an increasing proportion of jet fuel supply?"
Environmental advocates agree. Tom Taylor, UK policy manager for Transport and Environment, states,
"Increasing SAF production won't eliminate jet fuel imports overnight,but by scaling it up,
we can shift the source of aviation fuel from geopolitically sensitive fossil fuels to locally managed renewable grids and waste streams."
Large-scale investment is required, and widespread adoption remains distant.
In the short term, the aviation industry faces significant challenges. Jet fuel prices are unlikely to fall rapidly, and if shortages materialize, travelers and airlines may endure a turbulent summer.
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