European airlines are staring down the barrel of a fuel crisis that could ground flights across the continent in June, the International Energy Agency has warned, as reserves dwindle at an alarming rate and replacements strain security.
In its latest monthly oil market report, the Paris-based watchdog, which advises 32 member states on energy security, said Europe was sitting on six weeks’ worth of jet fuel. Unless the bloc can get at least half of the volumes it could have exported from the Middle East, stocks will hit a critical limit within weeks.
The warning comes as the Strait of Hormuz, the artery through which Gulf jet fuel flows to international markets, remains closed. Iran moved to block the waterway more than six weeks ago in retaliation for joint US-Israeli military strikes, and the blockade has sent fuel prices soaring and bailed out airline finance directors from Luton to Lisbon.
Speaking to the Associated Press, IEA executive director Fatih Birol did not mince his words: flight cancellations, he warned, could be weeks away if the taps remain closed.
Historically, Europe has depended on the Gulf for about three-quarters of its imported jet fuel. The IEA noted that industries in other major exporting countries, South Korea, India and China among them, are also heavily dependent on Middle East crude, meaning that the disruption, in itself, has disrupted the gears of the global aviation fuel market.
European buyers are now trying to close the gap. US refiners have ramped up shipments of jet fuel in recent weeks, but the IEA reckons that even if all the barrels off US shores were taken to European airports, it would cover only a fraction of the shortfall.
Under the agency’s modeling, a replacement rate of less than 50 percent would cause physical shortages at selected airports, forcing cancellations and what analysts politely call “the need for destruction”. Even if three-quarters of the missing volume can be replaced, the same squeeze is expected to bite in August. The bottom line, the IEA concluded, is that European markets will have to work harder to attract supplies from elsewhere if inventories are to maintain their summer highs.
The financial strain on the carriers is already severe. Fuel accounts for between 20 and 40 per cent of an airline’s operating costs, with the price of European jet fuel reaching a record $1,838 (£1,387) per tonne in early April, more than double the $831 recorded before the war broke out.
Brussels, on the other hand, is treading carefully. The European Commission said this week there was no evidence of shortages within the EU but admitted that supply problems could emerge in the near future. The spokesman confirmed that crude flows to European refineries remained stable without an urgent need to use strategic reserves, adding that oil and gas coordination groups now met weekly. Commission president Ursula von der Leyen is expected to present a package of energy measures next week.
The situation in Europe’s airports is sad. Airports Council International, the continent’s airport trade body, wrote to the Commission last week warning of possible fuel shortages unless the Strait of Hormuz is reopened in three weeks.
The pressure is already showing on airline balance sheets. In a trading update on Thursday, EasyJet said it had incurred £25m of extra fuel costs in March alone as a direct result of the Middle East conflict, and that was despite the Luton-based low-cost carrier having hedged more than three-quarters of its jet fuel requirements at pre-war prices. The airline has flagged near-term uncertainty in both fuel costs and passenger demand, a combination that rarely brings good returns.
For SME operators in the aviation supply chain, ground managers, charter firms, regional carriers and small transport businesses that depend on reliable air transport, the coming weeks will be a test of savings and business courage. With prices at record highs and deliveries far from guaranteed, the summer schedule is shaping up to be the riskiest the European airline industry has faced in a generation.
