Jet fuel prices have climbed back near their most expensive levels since the US-Iran war began, with Gulf Coast jet fuel reaching $4.55 per gallon as of Thursday, just over 20 cents off its wartime highs. In New York, jet fuel stood at $4.75 per gallon, according to latest reports. This broad-based fuel supply shock is roiling global energy markets, particularly affecting diesel and jet fuel as both are 'middle distillate' fuels with closely tied prices. Jet fuel production last week fell to the lowest level since early March, with supplies drawing closer to normal seasonal levels, potentially pushing prices further higher.
The international airfare crisis has intensified with Saudi Aramco canceling or delaying crude deliveries to European refiners following the shutdown of the kingdom's 7-million-bpd East-West pipeline. According to Argus market sources, at least three European refiners have had late-September cargoes canceled or pushed as far out as November, with two more expecting supply notices covering September supplies. The pipeline has been offline since a September 10 attack, carrying crude from eastern Saudi oil fields to the Red Sea port of Yanbu, bypassing the Strait of Hormuz. As per Argus, every Saudi cargo scheduled for the final 10 days of September could be at risk, with Yanbu estimated to have roughly five days of crude inventories remaining.
International travel during the festive season could become significantly more expensive, with analysts expecting airfares to rise by 5% to 20% if crude oil prices remain above $100 a barrel. According to estimates shared exclusively with NDTV Profit by EY, Grant Thornton Bharat and a senior aviation analyst, the biggest pressure is likely to be felt on long-haul international routes. The latest developments with both Saudi oil supply disruptions and elevated jet fuel prices are expected to further intensify these cost pressures on airlines. EY forecasts that if crude oil prices remain in the $100-$110 per barrel range, international fares could rise by around 8-15%. If Brent crude moves toward $110-$120, the increase could then widen to 12-20%.
Grant Thornton Bharat expects a more differentiated impact across routes, estimating that fares on highly competitive international sectors could rise by around 5-10%, while long-haul routes could see an increase of 10-20%. The current crisis is expected to particularly impact routes connecting India with the Gulf and Europe, as well as long-haul flights to North America. The Iran war-era crisis provides historical context, as dire warnings emerged in Europe about shortages and prices rose near or over $5 per gallon in New York, Los Angeles and on the Gulf Coast, causing significant strain on airlines including being a proximate reason for Spirit Airlines permanently shuttering operations in the US.
This pressure comes as Brent crude continues to trade above $100 a barrel on the back of continued geopolitical tensions in the Middle East. The latest developments with Saudi oil supply disruptions to Europe are expected to further drive crude prices higher, as Europe faces increased dependency on alternative oil sources. According to reports from NDTV Profit, Brent crude slipped below $104 a barrel on Friday, despite extending its decline for a third straight day. The crisis creates a dynamic where Russia's oil becomes increasingly attractive to European markets, potentially shifting geopolitical dynamics around the Ukraine-Russia conflict.
