Jet fuel prices hit record high following Hormuz crisis

The attacks by the US and Israel against Iran and the subsequent retaliation by the Tehran administration have severely disrupted commercial traffic in the Strait of Hormuz, the exit point of the Persian Gulf. The disruptions in the strait, one of the energy arteries of the global economy, have caused an extraordinary increase in jet fuel prices since February 27.

According to the latest data published by the International Air Transport Association (IATA), the barrel price of jet fuel, which was 99.4 dollars on February 27, rose by 95.2 percent in just one month to reach 195.2 dollars on March 27. This increase points to a supply shock not seen by the sector for a long time. The price of jet fuel per ton has reached 1,541 dollars.

The European, African, and Asian markets, which are directly affected by the Middle East, are under great supply pressure due to this restriction. According to analyses, approximately 20 percent of the world's oil, meaning about 20 million barrels per day, is transported through the Strait of Hormuz. While a significant portion of this amount consists of crude oil, the remaining part stands out as petroleum products, primarily jet fuel.

Following the outbreak of the US/Israel-Iran War on February 28, the increase in security risks in Hormuz and the fact that transportation has come to a standstill have caused sharp contractions in global oil supply. As the risk premium in the energy sector has risen, Brent oil prices have also climbed above 100 dollars. Extended delivery times and rising insurance costs are also negatively affecting the market.

EUROPEAN MARKET IS THE MOST VULNERABLE REGION IN SUPPLY

According to S&P Global Energy's analysis, approximately one-third of the region's daily jet fuel exports go to Europe. While an average of 177 thousand barrels of jet fuel per day is shipped to Northwest Europe alone, 31 thousand barrels are sent to Southern Europe and the Eastern Mediterranean, and 100 thousand barrels to Africa. The amounts reaching Asia and the Red Sea stand out as 17 thousand and 34 thousand barrels, respectively.

Europe, which is most dependent on the Persian Gulf, is shown as one of the most vulnerable regions in the event of possible supply shocks. IATA data shows that approximately 30 percent of Europe's jet fuel needs are met from this region. Due to supply difficulties in the region, dependence on commercial stocks in Europe has also increased. Similarly, Asian countries such as India and China are also directly affected by the restriction of oil passing through the Strait of Hormuz.

In the last month, the Platts index also confirmed that jet fuel prices for Northwest Europe, including insurance and freight, rose from 873.2 dollars to 1,704.5 dollars. During this period, the increase in prices reached nearly 95 percent.

RISING JET FUEL PRICES CHALLENGE AIRLINES

Since jet fuel is one of the items with the largest share in the operational costs of airline companies, the price shock is also reflected in ticket prices. Actors in the sector are of the opinion that this pressure will continue in the short term.

Scott Kirby, CEO of United Airlines, one of the world's largest airline companies, said in a statement last week, "Our company will need to increase air ticket prices by 20 percent to cover rising jet fuel costs."

The effects of the crisis in the Strait of Hormuz seem set to continue to be felt in the coming period with cost increases in air transport and, consequently, new hikes in ticket prices.

News Source: 12punto