JetA Shortage – Are we already too late?

Europe, Asia, Oceania, and Africa have about two to three weeks of JetA available at its airports, but will run out if replenishment can’t be made, and could be forced to ration fuel or curtail flights. The bad news is that even if the Iran war ended today, it could take weeks to months for tankers to transit the Strait of Hormuz and ship fuel to airports and refineries around the world. By then, several airports could be out of fuel and thousands of flights cancelled. Time has run out quickly to restore traffic and alleviate cancelled flights, and the two parties fighting are utilizing the blockade to economically punish each other.  The effects will be devastating to global airlines.

Refineries in the Gulf have been damaged by Iranian missile strikes. That is reducing the capacity to replace JetA production in the region. Goldman Sachs research suggests that the time to rebuild capacity to prewar levels could take months rather than weeks.  Unfortunately, we have weeks rather than months before the shortfall hits hard in Europe, Asia, and Africa.

The EU energy commissioner today stated that a potential long-term shortage cannot be dismissed, although an immediate threat to supplies does not exist.  Looking at the situation in several countries, and the pro-active cancellation of future flights, with Lufthansa cancelling more than 20,000, belies that assessment.  Europe, which mandates the use of JetA1, with a lower freezing point, is now allowing airlines to utilize JetA that is common in North America, as a substitute during the crisis.  A list of airlines cancelling flights can be found here.

US is in Better Shape

North America is in somewhat better shape, as it has both domestic oil production and domestic refining capacity for Jet A, including a refinery owned by Delta Air Lines. But the bad news is that the West Coast of the US isn’t connected to the major pipeline systems through the east and mid-west, and instead relies on imported Jet A from Japanese and Korean refineries. Those refineries rely on Gulf crude delivered by sea, which means a Strait of Hormuz passage. So part of the US could be just fine, while the west coast may run short on JetA.

SAF Isn’t a Solution Given Scant Production

SAF might have been an alternative, but production levels of SAF remain woefully small and wouldn’t provide a dent in the shortage. With the environment a political football in the US, the Oilers appear to have a four touchdown lead in the 1st quarter over the Greens, continuing the football analogy.  Any hope for that potential solution is non-existent in the near term.

Even in Europe, the pressure to replace JetA with SAF is moving slower than many in the industry anticipated, as the costs are significantly higher than Jet A. Today, while that ratio has changed with the rise in the cost of JetA, the inability to quickly ramp SAF production and add the appropriate infrastructure from feedstock to refining and distribution remains woefully inadequate to both significantly reduce carbon or to provide an alternative to JetA.

Both Sides of the War are Closing the Strait

While both parties state that they want the Strait of Hormuz open, both remain steadfast in blocking it with naval power. Rather than make progress on a solution, the standoff is exacerbating the crisis every day it remains closed. It is hard to fathom that both parties are doing the opposite of what they claim that they want, but that’s the situation. Unfortunately, to avoid a crisis, they need to move quickly rather than at a snail’s pace. This is despite economic impacts on both sides being quite significant, with Iran unable to move oil through the Strait and the rest of the world seeing shortfalls in petroleum products, both crude and refined, as well as other materials utilizing shipping.

Neither Side is Blameless

With a significant portion of the global fertilizer market shipped through the Strait, famine is now likely for some countries where planting may not provide an adequate yield without fertilizer. Missing some JetA and cancelling flights is one thing, but creating regional famine is another. A humanitarian crisis is looming, but progress appears to be purposefully slow on both sides. An agreement on opening the Strait is needed to avoid an unfortunate situation impacting lesser developed countries. With both sides blocking passage, both sides are to blame.

It is Time to Compromise

The world needs JetA to maintain international travel and fertilizer to avoid a famine. Moving all of the ships through the Strait may take weeks, and a highly coordinated effort to ensure that collisions don’t occur as hundreds of vessels aim at a small passageway. The crews of the ships may run out of food, as they have now been trapped on board for weeks. This is neither an easy nor easily resolved situation. An inchoate plan to resolve the crisis could delay things even further.

We would suggest a one month opening of the Strait, enforced by both sides, while negotiations on other issues continue. At the least, the crews and ships could return to their homes and en-route cargo delivered. A one passage exemption per ship – to either leave for home or come back home – would represent a common-sense alternative.

Plan for the Worst, Hope for the Best

As we look ahead to June, we foresee shortfalls in Jet A at major European airports, including Frankfurt, Paris, Amsterdam and London Heathrow. We also foresee shortfalls by July at West Coast US airports, including key hubs like Los Angeles, San Francisco, Salt Lake City, and Seattle. None of the airlines based in those cities want to cut their summer schedules, the peak season for airline revenues, but may not have a choice. If the worst happens, we could see European and Asian airline profitability disappear for 2026, as schedule disruptions impact revenues.

Delta Air Lines, which owns a refinery, could supply its own JetA and keep a good part of the US supplied with Jet Fuel from US based crude oil. The impact on US airlines will be substantially lower than for the rest of the world. Unfortunately, neither side seems to want to move quickly.

The Bottom Line

We are headed for a cliff, and it appears our brakes are failing. The current situation with JetA around the world is not good, as refineries in Asia are running out of crude oil feed stock, and the time required to ramp-up production is now at a critical point. Let’s hope that cooler heads will prevail, but it looks like the summer schedule, particularly for European and Asian airlines, will now be significantly impacted by the crisis in the Persian Gulf.

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