With imports from the Middle East still disrupted, Europe is urgently looking to alternative suppliers of jet fuel, but the continent will have to “fight for every cargo” in what analysts call a “global stress test” for the airline industry.
The loss of jet fuel in the Middle East due to the Iran war is fast becoming a serious logistics problem for Europe, according to Société Générale analysts.
The continent’s jet fuel demand, which averages around 1.6 million barrels per day, is typically met primarily by domestic production of 1.1 million barrels per day.
But the additional 500,000 barrels will come from imports, three-quarters of which traditionally come from the Middle East, SocGen analysts said in a note Monday.
That supply has been nearly depleted since the Strait of Hormuz shipping lane was effectively closed after the conflict between the United States and Iran began on February 28.
Benedict George, head of European product pricing at Argus, said jet fuel was still available but was “nowhere near” the fuel needed to replace the sources Europe typically imports from the Gulf.
“We can and are importing more from the United States and Nigeria, but we have to compete for every shipment that comes in,” George told CNBC’s “Squawk Box Europe” on Monday. “We have to fight against Singapore and Australia, but the cost…is only going to get higher and higher.”
alternative sources
Before the conflict began, about 360,000 barrels of jet fuel were typically transported through the Strait of Hormuz every day, about 20% of global shipments.
The United States is emerging as an important source of supplies for Europe. U.S. global jet fuel exports have hit the stratosphere, soaring to a record 442,000 barrels a day in early April and a four-week average of about 372,000 barrels a day, according to SocGen.
This is about 200,000 barrels per day higher than the five-year standard of 172,000 barrels per day. The United States has historically exported about half of this jet fuel to neighboring countries Mexico, Canada, and Panama, but Europe is also now competing for jet fuel.
Before the war, Europe typically received 30,000 to 60,000 barrels per day from the United States, but that has since jumped to about 200,000 barrels per day. However, a shortfall of about 53% of normal supply, or 175,000 barrels per day, remains in the Middle East.
International Consolidated Airlines Group.
“Europe will therefore need to tighten its bids for additional cargo to maintain summer inventories,” SocGen analysts led by FIC head of commodity research Mike Hay said in a note published this week.
According to SocGen, domestic production in Europe’s six largest jet fuel consumers – the UK, Germany, France, Spain, Turkey and Italy – meets about 63% of the combined demand of about 1.1 million barrels per day.
However, reliance on domestic refining and reliance on imported jet fuel are very different. For example, Spain is typically a net exporter of jet fuel, while the UK, Europe’s largest consumer, relies heavily on imports, sourcing around 65% of its needs from abroad.
Even net jet fuel exporters like the Netherlands are not protected from the effects of higher prices, George said.
Some Asian countries have already protected consumers by restricting jet fuel exports, but the United States has not followed suit.
“U.S. consumers and U.S. airlines are competing with European countries, Singapore and others for U.S. jet fuel,” George said.
Challenge to “existence”
The International Energy Agency warned earlier this month that Europe could run out of jet fuel within weeks.
Analysts at SocGen warned that price hedging among airlines may not be enough if there is indeed a physical fuel shortage.
“The distinction is important,” they noted. “Paying more for energy is manageable, but not having energy is survival.”
Mr George said there was still fuel in stock so the shortage was not imminent, but airlines needed to balance maintaining market share with recovering fuel costs.
“I think airlines will expect that if they pass this fuel cost on to consumers, at some point they won’t be able to fill the planes anymore,” he said. “It can vary quite a bit for each individual airline.”
Higher jet fuel costs due to higher oil futures prices could be passed on to consumers through increases in freight and other surcharges. But if flights were canceled due to unavailability of fuel, the SocGen analysts added that it would have a “very different and far more devastating outcome.”
Lufthansa.
Coupled with significant price increases on remaining routes, the prospect of major cancellations looms large across the continent. Lufthansa German Airlines Last week, it announced it would cancel about 20,000 flights, saving more than 40,000 tons of jet fuel.
A Lufthansa spokesperson told CNBC that the airline expects a “nearly stable fuel supply” for the summer schedule.
“Lufthansa is working on various measures to achieve this, including securing the physical supply of kerosene and protecting prices. In principle, our hedging strategy is designed to provide stability of plan and not completely eliminate market exposure,” they said.
The German airline hedged around 80% of its requirements in 2026 and 40% in 2027 at pre-crisis price levels. “This level of hedging puts us in a better position than most of our competitors,” the spokesperson added.
spokesperson for IAG The owners of British Airways, Aer Lingus and Iberia said: “While we are not seeing any disruption to jet fuel supplies, fuel prices have risen sharply and despite hedging strategies that provide short-term relief, we are not immune.”
“Our airlines will continue to monitor and respond to the situation. As long as these pressures persist, the government’s flexible response, including easing slots, will enable airlines to continue operating as efficiently as possible and meet persistent cost challenges while keeping people and trade moving.”
EasyJet said there were currently “no disruptions to fuel supplies” and operations were continuing as normal.
An easyJet spokesperson told CNBC: “We are committed to keeping our fares low and have already confirmed that we will not be adding additional fees to pre-booked flights, package holidays or future bookings this summer.”
Due to the “rapid and sudden” rise in fuel prices, Air France-KLM will increase ticket prices and make a number of adjustments to its flight schedule in the coming months, a spokesperson said.
Economy fares on long-haul round-trip flights have increased by 100 euros, and by 70 euros to the United States, Canada and Mexico. Fares for short and medium-haul flights in economy class will increase by €10 per return.
“In the coming months, we are continuously analyzing and monitoring the situation as well as various scenarios that could impact our operations, including the closure of the Strait of Hormuz and the reopening of the Strait of Hormuz.”
Wizz Air Chief Executive Officer József Varady said on Monday that the London-listed Hungarian low-cost carrier intends to increase its flight schedule this summer by 17% compared to last year. Varady added that the company’s fuel is 70% hedged for the summer season and that he does not expect the airline to run out of jet fuel.
However, Morningstar analysts warned that Wizz Air’s fuel margin buffer is the lowest of any major listed airline in Europe. ryanairIn contrast, the full-year hedge ratio is “high” at around 80%.
