European aviation is facing a fuel crisis that could result in flights being grounded across the continent by June, the International Energy Agency has warned. Reserves are dwindling at an alarming rate and securing replacement supplies is proving stubbornly difficult.
In its latest monthly oil market report, the Paris-based regulator, which advises 32 member states on energy security issues, said Europe was sitting on about six weeks’ worth of fuel. Unless the bloc can source at least half the volumes it would normally source from the Middle East, stocks will reach a critical threshold within weeks.
The warning comes as the Strait of Hormuz, the artery through which most Gulf fuel flows to international markets, remains effectively closed. Iran decided to close the waterway more than six weeks ago in retaliation for joint American and Israeli military strikes, and the blockage has driven up jet fuel prices and unsettled airline finance directors from Luton to Lisbon.
Speaking to the Associated Press, IEA CEO Fatih Birol didn’t mince his words: flight cancellations, he warned, could last for weeks if the taps remain closed.
Historically, Europe sources about three-quarters of its imported aviation fuel from the Gulf. The IEA noted that refineries in other major exporting nations, notably South Korea, India and China, are themselves heavily dependent on Middle Eastern crude, meaning the disruption has, as it put it, stalled the global market for jet fuel.
European buyers are now scrambling to fill the gap. American refiners have significantly increased their jet fuel exports in recent weeks, but the IEA estimates that even if every barrel leaving U.S. shores were sent to European airports, only a little more than half of the shortfall could be covered.
According to the agency’s modeling, a replacement rate of less than 50 percent would create physical bottlenecks at select airports, leading to cancellations and what analysts politely call “demand destruction.” Even if three quarters of the missing volumes can be replaced, the same shortage is expected to last until August. The result, the IEA concluded, is that European markets will need to make significantly more effort to attract cargoes from alternative sources if inventories are to be held through to the summer peak.
The financial burden on transport companies is already acute. Fuel typically accounts for between 20 and 40 percent of an airline’s operating costs, and the European benchmark price for aviation fuel hit a record $1,838 (£1,387) a ton in early April, more than double the $831 recorded before the outbreak of hostilities.
Brussels, on the other hand, is proceeding cautiously. The European Commission said this week there was no evidence of shortages within the EU but acknowledged that supply problems could emerge in the near future. A spokesman confirmed that crude oil flows to European refineries remained stable and there was no immediate need to tap strategic reserves, adding that oil and gas coordination groups were now meeting weekly. Commission President Ursula von der Leyen is expected to present an energy package next week.
The mood at Europe’s airports is less confident. The Airports Council International, the continent’s airport trade body, warned in a letter to the commission last week that there could be fuel shortages if the Strait of Hormuz is not reopened within three weeks.
The pressure is already evident in the airlines’ balance sheets. In a trading update on Thursday, EasyJet said it had absorbed £25 million in additional fuel costs in March alone as a direct result of the Middle East conflict, even though the Luton-based budget airline had hedged more than three-quarters of its jet fuel needs at pre-war prices. The airline pointed to near-term uncertainty around both fuel costs and passenger demand, a combination that rarely bodes well for earnings.
For SME operators in the air cargo supply chain, ground handlers, charter companies, regional airlines and small logistics companies that rely on reliable air cargo, the coming weeks will be a test of their cash reserves and their commercial nerves. With prices at record highs and supply far from guaranteed, the summer schedule is shaping up to be the most precarious schedule Europe’s aviation sector has faced in a generation.
