The head of the International Energy Agency (IEA) has issued a stark warning: Europe may possess only approximately six weeks of jet fuel reserves. This critical juncture could be reached in June if the continent fails to secure replacements for at least half of its usual imports originating from the Middle East. This assessment comes from a report released by the organization this week.
The Strait of Hormuz, a vital artery for jet fuel transit from the Persian Gulf, has been effectively impassable for over six weeks. This closure, a response to attacks by the United States and Israel, has driven prices skyward and cultivated widespread concerns about potential shortages.
Fatih Birol, the executive director of the IEA, informed the Associated Press that flight cancellations could soon become a reality if these supply disruptions persist. These concerns are amplified by the fact that exports from the Gulf region constitute the largest portion of global jet fuel supply, according to the IEA’s monthly oil market report. This report advises 32 member nations on matters of energy supply and security.
Furthermore, refineries in other significant exporting nations, including South Korea, India, and China, are themselves heavily reliant on crude oil imports from the Middle East. Consequently, the ongoing crisis has, as the report states, “thrown a proverbial wrench into the inner workings of the aviation fuel markets.”
Historically, Europe has depended on the Middle East for approximately 75% of its imported jet fuel. Currently, European countries are actively seeking alternative sources to substitute for imports from the Gulf. The IEA has observed a notable increase in US jet fuel exports in recent weeks.
However, the agency cautions that even if all these additional shipments were directed towards Europe, they would only substitute for slightly more than half of the compromised supplies. Analysis of various scenarios indicates that if Europe cannot replace more than 50% of its Middle Eastern imports, “physical shortages may emerge at select airports, resulting in flight cancellations, and demand destruction.” Should three-quarters of the supplies be successfully replaced, a similar situation could still materialize, albeit not until August.
“Consequently, for now, it would appear that European markets will need to work harder to attract further replacement cargoes from elsewhere if sufficient inventory is to be maintained over the summer months,” the report suggests.
Airlines globally have been compelled to implement emergency measures to mitigate the escalating costs of fuel, which typically represents 20% to 40% of their operational expenses. The benchmark European jet fuel price reached an unprecedented high of $1,838 (£1,387) per tonne at the beginning of April, a significant increase from $831 prior to the conflict’s commencement.
Earlier this week, the European Commission stated that there was “no evidence of fuel shortages” within the European Union. Nevertheless, it acknowledged the potential for supply issues “in the near future.” A Commission spokesperson, speaking at a press briefing, confirmed that crude oil supplies to EU refineries remained “stable with no need for additional stock releases at present.” The Commission also indicated that its oil and gas coordination groups were convening weekly, with further energy-related measures to be announced by the Commission president in the following week.
Last week, the trade body representing European airports, Airports Council International, formally addressed the Commission in a letter, warning of potential jet fuel shortages across the continent if the Strait of Hormuz did not reopen within the next three weeks.
In a trading update released earlier on Thursday, EasyJet reported experiencing an additional £25 million in fuel costs during March, directly attributable to the Middle East conflict. This occurred despite the airline having secured more than three-quarters of its jet fuel at a fixed price before the conflict’s escalation, a practice known as hedging. The airline further stated that the conflict had introduced “near-term uncertainty around fuel costs and customer demand.”