Jet Fuel Shortages Impact Global Aviation Sector

The global aviation sector is experiencing significant jet fuel supply disruptions, initially affecting Asian markets and now posing a risk to Europe and parts of the United States. These challenges stem from the closure of the Strait of Hormuz, a critical energy transit point, which has led to record-high fuel prices and prompted airlines to adjust operations.

Asian nations, heavily reliant on crude oil imports via the Strait of Hormuz, have been particularly affected. Vietnam Airlines has suspended domestic routes, and budget carrier VietJet has reduced international flights. Air New Zealand has cancelled approximately 1,100 domestic services. In response, China has restricted fuel exports, while South Korea is considering diverting export-bound jet fuel to its domestic market.

Energy data analysis firm Kpler indicates that the current shortages are uneven, with Southeast Asia, a region dependent on imports, experiencing the most severe supply constraints. The Philippines has also noted that its fuel supply is only guaranteed until the end of June.

Europe and the United Kingdom could face similar conditions within weeks, as they also depend on supplies from Persian Gulf refineries. Energy analysis firm Sparta Commodities suggests that if the Strait of Hormuz remains closed, Europe could see fuel shortages by May. European refiners increasing operating rates, delaying maintenance, or adjusting output towards jet fuel may not fully offset the supply deficit.

Even the United States, a net oil exporter, is not immune. Over 18% of jet fuel consumed in the US West Coast, Hawaii, and Alaska last year was imported, primarily from South Korea, making these regions vulnerable to supply shocks. Some US airlines, including United Airlines, have already cancelled less profitable routes due to rising fuel costs.

Global jet fuel and kerosene refinery output is projected to decrease by approximately 600,000 barrels per day in March compared to the previous month. While this represents about a 7% reduction, it occurs just as demand typically increases ahead of the Northern Hemisphere's summer travel season. The International Air Transport Association (IATA) has stated that airlines will likely need to pass these increased costs on to consumers through higher ticket prices.

Industry experts note that even if tensions ease and the Strait of Hormuz reopens swiftly, a full return to normal for global supply chains could take weeks or months. This is attributed to the time required for trade flows to normalise, refineries to adjust production structures, and airlines to rebuild flight schedules.

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