The prolonged closure of the Strait of Hormuz, a critical waterway through which approximately 20 percent of the world’s oil typically flows, has created widespread fuel supply disruptions affecting airlines and energy markets globally. The closure stems from conflict in the region, with Iran allowing only limited fuel shipments through the passage. Several months of restricted trade have left numerous countries facing acute shortages of aviation fuel.
Europe has experienced particularly acute supply pressures. In July, multiple European carriers warned of potential jet fuel depletion risks. Energy consultancy forecasts from earlier in the year indicated Europe could face a deficit of nearly 600,000 barrels per day in the third quarter, contrasting sharply with surpluses in North America and Asia-Pacific regions. The continent historically imported roughly half its jet fuel from the Middle East before the conflict disrupted traditional supply chains. Current European reserves at the start of the summer season represented approximately 30 days of demand. EU officials acknowledged potential shortages near the end of the summer season while indicating plans to coordinate strategic reserve releases.
To address shortages, European nations have diversified suppliers, drawing fuel from the United States, Nigeria, Canada, India, and South Korea. Domestically, some producers have increased output; Italian refineries boosted jet fuel production by around 10 percent during the first four months of the year. Jet fuel prices have experienced significant volatility, ranging from over $215 per barrel in March to just above $130 per barrel at later points. Since fuel comprises 20-25 percent of airline operating expenses, cost pressures have forced some carriers to reduce flight schedules.
Airline responses have varied based on hedging strategies and geographic exposure. United States carriers historically reduced fuel price hedging due to abundant domestic supply and expanded refining capacity, leaving them vulnerable to recent volatility. United Airlines projected approximately $6 billion in additional fuel costs for the full year compared to earlier projections. Southwest addressed West Coast supply constraints by shipping fuel via Panama Canal from Texas. European carriers employing hedging strategies, such as advance price-locking for future fuel needs, have demonstrated greater resilience. Regions with limited refining capacity face disproportionate challenges as global supplies remain constrained and prices remain elevated.
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