A looming jet fuel shortage in Europe and Asia could compound the Iran war’s impact on world travel within weeks if a fragile agreement to reopen the Strait of Hormuz collapses, making higher airfares and flight cancellations even more likely as the summer travel season approaches.

Crude oil prices plunged Friday after Iran’s foreign minister said tankers and other commercial vessels could again pass unimpeded through the narrow waterway off the country’s coast that serves as a conduit for about one-fifth of the world’s oil and natural gas.

President Donald Trump cheered the announcement but then said the U.S. would continue its blockade of Iranian ships entering or leaving the strait until Washington and Tehran reached a deal to end the war, which started Feb. 28 when the U.S. and Israel attacked Iran.

The oil market is expected to take months to recover from shipment disruptions, and fuel prices typically take longer to fall than prices for crude. In a sign of the conflict’s ongoing repercussions for airlines and their passengers, Air Canada said Friday it was canceling service to New York’s John F. Kennedy International Airport between June and October due to surging jet fuel costs.

Jet fuel—a refined kerosene-based oil product—is airlines’ biggest cost, making up about 30% of overall expenses, according to the International Air Transport Association. And jet fuel prices have roughly doubled since the war began. Shortages could start next.

In an exclusive Thursday interview with The Associated Press, International Energy Agency Director Fatih Birol said Europe had “maybe six weeks” of remaining jet fuel supplies. In general, some European countries hold several months’ worth of jet fuel inventory at a time, according to an IEA report released this week

Airline officials have largely reacted with caution, acknowledging potential fuel issues but working to reassure customers. Still, some carriers have already passed costs on to consumers by increasing fees for baggage and other add-ons, embedding costs into ticket prices, or raising fuel surcharges. 

Which regions could feel pain?

Asia-Pacific countries are the most reliant on oil and jet fuel from the Middle East, followed by Europe, Rousseau said.

Most of Europe’s jet fuel is produced by European refiners, but about 20-25% of its supply is missing because of the war, Rousseau said.

To fill some gaps, the U.S. increased its exports of jet fuel to Europe considerably, sending about 150,000 barrels per day in April, or about six times the normal level, Rousseau said. 

How much is the world supply of jet fuel lagging?

The world is losing 10 million to 15 million barrels of oil a day due to the closure of the Strait of Hormuz, said Pavel Molchanov, senior investment strategist at investment firm Raymond James & Associates.

Even though the IEA has released 400 million barrels of oil from members’ emergency reserves, that won’t help in the short term, Molchanov added.

“It could take until the end of the year to get all of those barrels onto the market,” he said.

How will my travel be affected?

Christopher Anderson, a professor of operations, technology and information management at Cornell University, said travelers should prepare for more than just higher airfares.

“This is no longer just a fuel-price story. For airlines, it is now a network-planning story,” he said. “Higher fuel costs matter, but so do longer routings, reduced scheduling flexibility and greater uncertainty about what demand will look like even a few weeks out.”

Travelers might see “a market with later booking patterns, more schedule volatility and fewer low-fare options if this disruption lasts into the core summer season,” he said.

Source: AP