IEA Warns of 6-Week Supply Crisis & Flight Cancellations

European aviation is staring down the barrel of a fuel crisis that could ground flights across the continent by June, the International Energy Agency has warned, with reserves thinning at an alarming pace and replacement supplies proving stubbornly difficult to secure.

In its latest monthly oil market report, the Paris-based watchdog, which counsels 32 member states on energy security, said Europe was sitting on roughly six weeks’ worth of jet fuel. Unless the bloc can source at least half of the volumes it would ordinarily draw from the Middle East, stocks will hit a critical threshold within weeks.

The warning comes as the Strait of Hormuz, the artery through which the bulk of Gulf jet fuel flows to international markets, remains effectively shut. Iran moved to close the waterway more than six weeks ago in retaliation for joint American and Israeli military strikes, and the blockade has sent kerosene prices soaring and rattled 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 cautioned, could be weeks away if the taps remain shut.

Historically, Europe has leaned on the Gulf for around three-quarters of its imported jet fuel. The IEA noted that refineries in other major exporting nations, South Korea, India and China chief among them, are themselves heavily reliant on Middle Eastern crude, meaning the disruption has, in its own phrasing, jammed the gears of the global aviation fuel market.

European buyers are now scrambling to plug the gap. American refiners have sharply accelerated jet fuel exports in recent weeks, but the IEA reckons that even if every barrel leaving US shores were routed to European airports, it would cover only a little over half the shortfall.

Under the agency’s modelling, a replacement rate below 50 per cent would trigger physical shortages at selected airports, forcing cancellations and what analysts politely term “demand destruction”. Even if three-quarters of the missing volumes can be replaced, the same squeeze is expected to bite by August. The upshot, the IEA concluded, is that European markets will need to hustle considerably harder to attract cargoes from alternative sources if inventories are to hold through the summer peak.

The financial strain on carriers is already acute. Fuel typically accounts for between 20 and 40 per cent of an airline’s operating costs, and the benchmark European jet fuel price touched a record $1,838 (£1,387) per tonne at the start of April, more than double the $831 recorded before hostilities erupted.

Brussels, for its part, is treading carefully. The European Commission said this week there was no evidence of shortages within the EU but conceded that supply issues could surface in the near future. A spokesperson confirmed that crude flows to European refineries remained stable with 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 unveil a package of energy measures next week.

The mood at Europe’s airports is less sanguine. Airports Council International, the continent’s airport trade body, wrote to the Commission last week warning that fuel shortages could materialise unless the Strait of Hormuz reopens within three weeks.

The pressure is already showing on airline balance sheets. In a trading update on Thursday, EasyJet said it had absorbed £25m of additional fuel costs in March alone as a direct consequence 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 requirement at pre-war prices. The airline flagged near-term uncertainty over both fuel costs and passenger demand, a combination that rarely bodes well for earnings.

For SME operators in the aviation supply chain, ground handlers, charter firms, regional carriers and the small logistics businesses that depend on dependable air freight, the coming weeks will be a test of cash reserves and commercial nerve. With prices at record highs and supply far from guaranteed, the summer schedule is shaping up to be the most precarious Europe’s aviation sector has faced in a generation.

Amy Ingham

Amy is a newly qualified journalist specialising in business journalism at Business Matters with responsibility for news content for what is now the UK’s largest print and online source of current business news.

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