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The head of the International Energy Agency (IEA) has issued a warning that Europe only has "maybe six weeks of jet fuel left." Stocks would reach a tipping point in June if Europe was unable to replace at least half of its imports from the Middle East, the organisation said in a report this week.
In response to attacks from the United States and Israel, Iran has effectively closed the Strait of Hormuz, a crucial route for jet fuel out of the Gulf. This has sent the price skyrocketing and raised concerns about shortages. IEA executive director Fatih Birol told AP there could soon be flight cancellations if supplies remained blocked.
The agency, which advises 32 member nations on energy supply and security, stated in its monthly oil market report that exports from the Gulf were the largest source of jet fuel for the global market. Oil imports from the Middle East were heavily reliant on refineries in India, China, Korea, and other major exporting nations. It stated that the crisis had "proverbially thrown a wrench into the internal workings of the aviation fuel markets" as a result.
In the past, Europe has relied on the Middle East for about 75% of its jet fuel imports, the IEA noted.
At the moment, European countries are scrambling to replace supplies from the Gulf with imports from elsewhere. Analysts say this is coming from the US and Nigeria.
The IEA said there had been a rapid acceleration in US jet fuel exports in recent weeks.
However, it warned in its report that even if these shipments were all destined for Europe, they would only replace a little over half of the lost supplies.
Analysing different scenarios, it said that if Europe was unable to replace more than 50% of its Middle Eastern imports, "physical shortages may emerge at select airports, resulting in flight cancellations, and demand destruction".
If three-quarters of supplies could be replaced, the same situation could still arise, but not until August.
"Consequently, for now, it would appear that European markets will need to work harder to attract further replacement cargoes from elsewhere if sufficient inventory is to be maintained over the summer months," it said.
Amaar Khan, head of European jet fuel pricing at Argus Media, believes that even if supplies from the Gulf resume in the near future, there could still be shortages in the run-up to the summer travel peak.
"It's not a sure thing, but it seems increasingly likely that there will be a shortage in some parts of Europe. Naturally, Heathrow will probably get more attention than other smaller airports or smaller demand hubs. But yes, even if that supply does come on, it will take five to six weeks," he said.
Due to the rising cost of fuel, which typically accounts for 20-40% of their operating costs, numerous airlines worldwide have been forced to take emergency measures. At the beginning of April, the benchmark price for jet fuel in Europe reached an all-time high of $1,838 (£1,387) per tonne, up from $831 prior to the start of the war. Earlier this week, the European Commission said there was "no evidence of fuel shortages" in the European Union, but acknowledged there could be supply issues "in the near future".
During a press conference, a spokesperson stated that the supply of crude oil to EU refineries was "stable with no need for additional stock releases at present." The Commission said oil and gas coordination groups were meeting weekly, and energy measures would be announced by the Commission president next week.
Last week the trade body for European airports, the Airports Council International, wrote to the Commission warning the continent could see jet fuel shortages if the Strait of Hormuz does not reopen in the next three weeks.
Industry group Airlines for Europe has called on the EU to clarify its passenger compensation rules to ensure that fuel shortages or airspace closures that result from the conflict are treated as "extraordinary circumstances".
This would mean that when they result in cancellations, airlines do not have to make significant compensation payments.
In a trading update earlier on Thursday, EasyJet said it had experienced £25m of additional fuel costs in March due to the Middle East conflict.
This was despite the airline having secured more than three-quarters of its jet fuel at a fixed price before costs rose due to the current conflict - a process known as hedging.
It said the conflict had prompted "near-term uncertainty around fuel costs and customer demand".
Dutch airline KLM said it will cancel 160 flights in Europe in the coming month due to rising fuel costs.
It said this was less than 1% of its European fights, adding it was not experiencing a shortage of jet fuel.
Source: BBC
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