The head of the global airlines body has warned that jet fuel prices are expected to remain elevated for months, even if Iran reopens the Strait of Hormuz, as damage to Middle East refining capacity prevents supply from recovering immediately.
Willie Walsh, director general of the International Air Transport Association (IATA), told reporters in Singapore that while crude oil prices may fall following the two-week US-Iran ceacefire, jet fuel costs will lag due to regional refinery disruptions.
Supply disruptions impact airlines
“If the Strait of Hormuz were to reopen and remain open, it would still take months to restore supply given the disruption to Middle East refining capacity,” Walsh said. Jet fuel prices have more than doubled since the Iran conflict began, outpacing a 50% rise in crude prices before the ceasefire. Fuel accounts for around 27% of airline operating costs, making it the second-largest expense after labour.
Walsh emphasised that the situation differs from the COVID-19 pandemic, noting it is closer to the aviation downturns of 2008-09 and the post-September 11 period, with recovery periods ranging from four to twelve months.
Airline stocks rise on ceasefire news
News of the truce and potential reopening of the Strait of Hormuz sent airline stocks higher across Asia and Europe. Qantas jumped 9%, IndiGo rose 10%, Cathay Pacific 5%, and Air New Zealand over 4%. In Europe, Wizz Air and Air France-KLM climbed 14%, while Lufthansa, Finnair, IAG, and Ryanair gained between 8% and 10%.
Walsh noted Gulf carriers, which made up 14.6% of international aviation capacity last year, will recover quickly once conditions stabilise, though their capacity cannot be fully replaced in the short term by non-regional airlines.
Path to fuel supply recovery
Countries including India and Nigeria have refining capacity that could boost jet fuel output in the short term, while China and South Korea are expected to resume exports once crude flows resume. Elevated refinery margins provide an incentive for production ramp-up, but Walsh cautioned that it will take time for supply to normalise.
“There is capacity available once crude oil flows, but it’ll take a little bit of time,” he said.
Also read: Iran 10-point plan shapes ceasefire talks
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