The recent conflict in the Middle East has sent oil prices skyrocketing by up to 70%, with jet fuel supply disruptions now comparable to the aftermath of 9/11, according to the International Air Transport Association (IATA). Jet fuel, which accounts for 27% of an airline's operating budget, remains a critical expense for carriers worldwide. Even if the Strait of Hormuz—a vital chokepoint for 20% of global oil—reopens, refining capacity in the Middle East has been severely throttled, prolonging the crisis.
'If the Strait of Hormuz were to reopen and remain open, it will still take months to restore supply due to the disruption to refining capacity,' said Willie Walsh, IATA Director General.
According to S&P Global Energy, refining capacity in the conflict zone has shrunk by 10% to 12%, halting the production of over 2 million barrels per day. The lack of strategic reserves for jet fuel, unlike crude oil, exacerbates the challenge. Airlines, already grappling with soaring costs, have taken measures to offset losses. United Airlines increased baggage fees by $10, while Malaysian carrier AirAsia X raised fares by up to 40% and fuel surcharges by 20%.
Historic Precedents
While the current disruptions are less severe than the pandemic-induced aviation crisis, Walsh compared the situation to post-9/11 or the Great Recession, where recovery took several months. Thai Airways CEO Chai Eamsiri described the current oil shock as the worst in his nearly 40-year career, citing destroyed infrastructure as a key factor delaying recovery.
United Airlines CEO Scott Kirby cautioned that oil prices may not fall below $100 per barrel until 2027, urging preparedness for prolonged challenges. Despite the grim outlook, Walsh emphasized that the industry is not facing a crisis on the scale of COVID-19, offering a glimmer of hope for a gradual recovery.