Why global jet fuel crisis could last for months
What's the story
The global jet fuel market is unlikely to stabilize in the near future, even after a tentative reopening of the Strait of Hormuz. Willie Walsh, Director General of the International Air Transport Association (IATA), has warned that supply disruptions from the Middle East conflict could take months to resolve. The warning comes as a US-Iran ceasefire raises hopes for restored oil flows but highlights deeper damage in regional refining capacity.
Recovery timeline
Recovery road ahead
Walsh stressed that it will take months to return to the required supply levels due to the disruption in refining capacity in the Middle East. He said, "I don't think it's going to happen in weeks," emphasizing a long road ahead for recovery. This comes after oil prices plummeted following a two-week ceasefire agreement between Washington and Tehran, which includes temporarily reopening the strait.
Market challenges
Crude flow resumption won't fix downstream constraints
Despite the US-Iran ceasefire and subsequent oil price drop, Walsh warned that the resumption of crude flows won't immediately fix downstream constraints. He explained, "Even if you have the flow of crude start again, if you've had disruptions in refining capacity, then the problem continues for some time." This means that even with increased oil supply, issues with refining and distribution could persist.
Cost impact
Increased costs passed to passengers
Jet fuel, the second-largest cost for airlines after labor, usually makes up about 27% of operating expenses. However, the prices have more than doubled during the conflict, outpacing crude oil's rise. Walsh said that higher costs would be passed on to passengers. This means travelers could face increased ticket prices as airlines grapple with rising jet fuel costs.
Aviation impact
Changing global aviation patterns
The ongoing conflict has changed global aviation patterns, with airlines rerouting their flights, carrying extra fuel, and cutting services through affected areas. While some international carriers have absorbed the displaced demand, the capacity gaps remain significant. Walsh said there is no way to replace the capacity provided by Gulf carriers.
Future prospects
Potential solutions on the horizon
Walsh noted that refineries outside the Middle East, particularly in India and Nigeria, could help stabilize supply over time. He said, "There is (refining) capacity available once we get the crude oil flowing, but it'll take a little bit of time."