Middle east: The war in the Middle East completed its first month since US and Israeli military attacks against Iran triggered a full-blown conflict in the region, leading to the closure of the Strait of Hormuz, paralyzing maritime trade in the critical chokepoint for global oil supply and doubling jet fuel prices.
According to Anadolu Agency, the Strait of Hormuz is a vital waterway at the mouth of the Persian Gulf, connecting oil and liquefied natural gas (LNG) production in the Middle East to global markets via the Arabian Sea and the Indian Ocean. Twenty percent of the world's daily oil demand, making up 20 million barrels, is transited via the waterway, with 15 million barrels comprising crude and 5 million petroleum products.
Following the outbreak of the war on February 28, Tehran's subsequent retaliations and mutual clashes led to commercial vessel traffic being disrupted and security risks skyrocketing in the Strait of Hormuz, resulting in a massive supply disruption in global oil markets. Brent crude climbed above $100 per barrel, while supply constraints applied upward pressure on other petroleum products, especially jet fuel.
Some 177,000 barrels of jet fuel are supplied daily from the Middle East and northwestern Europe, while 31,000 go to southern Europe and the eastern Mediterranean, 100,000 to Africa, and 17,000 to Asia. Additionally, 34,000 barrels of jet fuel from the region transit via the Suez Canal, reaching the Red Sea, primarily Egypt.
Regions relying heavily on Gulf of Basra supplies, especially Europe, are one of the most vulnerable to supply disruptions. Around 30% of Europe's jet fuel demand is sourced from the Persian Gulf, according to the International Air Transport Association (IATA). Europe's jet fuel supply security relies on commercial stocks equivalent to one month's demand.
Potential buyers like India and China are also facing supply constraints in their markets, as more than 80% of the crude oil transited through the Strait of Hormuz reaches Asian markets. The blockade in the vital waterway limits access to crude oil needed for jet fuel refining in Asian markets. Rising war risk premiums and longer transit due to vessels rerouting around the Cape of Good Hope in Africa drive up costs and extend delivery times.
The sudden drop in shipping capacity through the Strait of Hormuz and a massive rise in insurance premiums tightened supply, while rising concerns about physical constraints caused jet fuel margins and product premiums to surge in the last month. The global jet fuel index price rose from $99.4 per barrel a day before the war broke out to $195.2 by March 27, marking a 95.2% surge, while the ton price reached $1,541.
The S and P Global Energy's Platts index showed that the jet fuel cost in northwestern Europe, including costs, insurance, and freight, surged from $873.2 on February 27 to $1,705.5 on March 27, while prices skyrocketed 95% in the same period. Jet fuel is one of the largest cost items for airlines. The sharp rise in jet fuel prices is adding pressure on airfare prices. Scott Kirby, CEO of United Airlines, said last week that airfare prices will have to rise 20% for the company, one of the world's largest airlines, to cover rising jet fuel costs.