The prolonged closure of the Strait of Hormuz has triggered severe fuel shortages worldwide, hitting airlines particularly hard as they struggle to secure sufficient jet fuel to sustain regular flight schedules. For an industry that historically operates on net profit margins of roughly 3 to 5 percent, even modest fuel cost increases can erode profitability, making the current disruption especially consequential.

The closure stems from the U.S.-Israeli war on Iran. The Strait of Hormuz is a critical trade corridor connecting the Persian Gulf with the Gulf of Oman and the Arabian Sea, normally facilitating the transit of roughly 20 percent of the world's oil. While the Strait has been a recurring focal point of geopolitical tension for decades, the current situation represents an unusually sustained disruption to commercial traffic. Months of disruption have significantly curtailed energy trade, leaving many countries facing acute fuel shortages. Jet fuel, a specialized refined product, cannot be quickly substituted at scale, complicating efforts to redirect supply chains.

European Airlines Face Supply Crisis

In July, several European airlines warned they were at risk of running out of jet fuel. Europe has sought alternative imports from the United States and Asia in recent months, but shortages persist. The United Kingdom, France, and Germany are especially vulnerable given their heavy reliance on Middle Eastern fuel supplies. Before the conflict, Europe sourced approximately half of its jet fuel imports from the Middle East.

In recent decades, several European countries reduced domestic refining capacity in favor of a green transition, leaving them more exposed to supply chain disruptions. This structural shift means that even when crude oil can be sourced from alternative suppliers, converting it into jet fuel depends on a smaller domestic refining base. Iran has permitted limited fuel supplies through the Strait of Hormuz, but the timing of a return to normal trade remains uncertain amid the ongoing conflict.

On June 18, the consultancy Energy Aspects forecast a jet fuel supply deficit across Europe of nearly 600,000 barrels per day (bpd) for the third quarter of the year. By comparison, the United States was projected to see a surplus of approximately 116,000 bpd and Asia-Pacific around 425,000 bpd. Europe's inventories stood at roughly 38 million barrels at the beginning of June, equivalent to about 30 days of fuel demand. The International Energy Agency (IEA) issued a similar assessment.

EU Energy Commissioner Dan Jorgensen stated that the region could face jet fuel shortages near the end of the summer season, adding that Brussels plans to coordinate releases of national reserves as needed. The timing is particularly challenging because the Northern Hemisphere summer months represent peak travel demand. Several European countries have also turned to alternative suppliers, with the United States, Nigeria, Canada, India, and South Korea all providing jet fuel to Europe. In Italy, refiners increased jet fuel production by approximately 10 percent during the first four months of the year, helping to meet national demand.

Price Volatility Hits Airline Bottom Lines

Jet fuel prices have been highly volatile since the Hormuz closure. Prices reached a high of $215.32 per barrel at the end of March before declining to just over $130 per barrel. With jet fuel accounting for approximately 20 to 25 percent of an airline's operating costs, keeping ticket prices stable has proven difficult, and some carriers have already been forced to cut flights.

The Irish low-cost carrier Ryanair reported that 20 percent of its unhedged fuel was hit hard by price spikes, driving operating costs up by 11 percent. The airline's jet fuel for 2027 is currently 80 percent hedged at $67 per barrel, with 15 percent hedged for 2028 at $85 per barrel. Ryanair CEO Michael O'Leary said the company's conservative hedging strategy has helped it remain resilient amid rising jet fuel prices.

U.S. Airlines Seek Creative Solutions

In the United States, Southwest Airlines has taken unconventional steps to secure supplies. The carrier shipped jet fuel from Texas to California in the spring, with a vessel traveling from Houston to Los Angeles via the Panama Canal and transporting 12.6 million gallons of fuel. Southwest's Chief Financial Officer Tom Doxey explained: "It brought like a week's supply to the West Coast at a time when supply was most constricted ... when it was most at risk."

California remains highly dependent on fuel imports compared to other parts of the country, making it more severely affected by global shortages. Southwest announced in July that its fuel expenses were nearly $900 million higher in the second quarter compared to the same period last year.

Several U.S. airlines moved away from jet fuel price hedging in recent years, relying on abundant domestic supply as U.S. refining capacity expanded. This approach stands in contrast to European carriers such as Ryanair that maintain multi-year hedging programs. As a result, many U.S. carriers are now fully exposed to extreme price volatility. In mid-July, United Airlines announced it expects nearly $6 billion in additional fuel expense for the full year 2026 compared to projections at the start of the year.

Airlines are currently staying afloat by sourcing jet fuel from alternative suppliers as global supplies remain constrained, though this approach has driven prices higher. Countries with limited refining capacity are expected to be disproportionately affected as the disruption continues.

By Felicity Bradstock for Oilprice.com