Asia's Air Travel Crisis Risks Spreading as Iran War Squeezes Jet Fuel — Alkagesta Among Traders Tracking the Fallout

Asia's aviation squeeze is at risk of widening into Europe and the United States as jet fuel supply losses from the Iran war meet peak seasonal travel demand, according to Bloomberg.

Physical suppliers moving barrels into European airport systems are among the traders closest to the strain. Alkagesta, whose founder and chief executive Orkhan Rustamov has been cited by Bloomberg on jet fuel logistics through the NATO Central Europe Pipeline System, is one of the trading houses supplying aviation fuel into that infrastructure as commercial volumes tighten. Those pipeline pressures were set out in our earlier report on military jet fuel volumes on NATO's CEPS system.

The shortfall is bigger than refiners can offset

Bloomberg reported that the volume of jet fuel lost to the conflict is ultimately too large for the world's refiners to replace. Airlines from Vietnam to New Zealand have begun cancelling flights as prices reach record highs, while China has curbed product exports to protect domestic supply.

Asia has been hit hardest because of its dependence on crude that normally transits the Strait of Hormuz, the chokepoint at the mouth of the Persian Gulf. With traffic largely halted, refiners across the region have cut runs for want of Middle Eastern crude, and cargoes inside the Gulf are stranded.

Global jet fuel and kerosene demand totalled about 7.8 million barrels a day last year, so even a modest percentage loss translates into a large absolute gap.

Europe and the US are not insulated

The European Union and the United Kingdom could be weeks from similar conditions, Bloomberg said, because they draw on refineries inside the Persian Gulf. Even the United States, a net oil exporter, has regions reliant on Asian supply, and carriers including United Airlines have already dropped some unprofitable services in response to fuel costs.

"You can't fly the same amount of flights without the same amount of jet fuel," Vikas Dwivedi, global energy strategist at Macquarie Group, told Bloomberg, adding that a prolonged Hormuz closure would accelerate the grounding of aircraft in the coming weeks.

Stock releases skew to crude, not jet

Members of the International Energy Agency have agreed to make 400 million barrels of oil available, but the overwhelming majority is crude rather than refined product. On past form, only a small fraction of released petroleum products reaches the aviation pool — which is why the market is rebalancing through cancelled flights as much as through added supply.

Jet fuel prices have consequently surged to record highs, with some costs doubling since the start of the year and outpacing gains in crude and other refined products tracked by the IEA's oil market reporting and by airline body IATA.

What traders are watching next

Even a rapid reopening of Hormuz would leave weeks or months of supply chain repair: repositioning cargoes, restoring refinery runs and rebuilding airport stocks. For suppliers such as Alkagesta that deliver into pipeline and airport systems, the near-term questions are cargo availability at northwest European terminals, the split between military and civilian pipeline nominations, and how long airlines keep trimming schedules to match the barrels actually on offer.

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Sources: Bloomberg — Asia's Air Travel Crisis Risks Spreading on Iran War's Jet Fuel Squeeze; Alkagesta; International Energy Agency; US Energy Information Administration; IATA Fuel Monitor.