The International Air Transport Association (IATA) has issued a warning that restoring aircraft fuel supplies to their normal levels may take several months, even if the Strait of Hormuz is reopened. This warning comes amid substantial damage to refining capacities in the Middle East due to ongoing conflicts.
IATA's Director General, Willie Walsh, stated that the current supply disruptions differ from the COVID-19 pandemic crisis, as the impact this time is focused on supply chains rather than border closures or a near-total halt in travel.
Details of the Situation
During a press conference in Singapore, Walsh noted that crude oil prices could decline with any easing of tensions, but aircraft fuel prices would remain relatively high due to damage to refineries. He emphasized that it would take months to return to the required supply levels, even if the strait remains open.
Fuel is the second-largest cost item for airlines after wages, accounting for approximately 27 percent of total operating expenses, according to IATA data. News regarding a potential ceasefire between the United States and Iran has supported airline stocks globally, coinciding with a drop in oil prices below $100 per barrel.
Context and Background
Iran's closure of the Strait of Hormuz was one of the military conflict responses, leading to a global squeeze on aircraft fuel supplies. These conditions have forced airlines, particularly in Asia, to reduce their flights or stock up on additional fuel, increasing operational costs. Aircraft fuel prices have doubled compared to previous levels, far exceeding the rise in crude oil prices.
Despite this, Walsh downplayed the likelihood of a repeat of the COVID-19 pandemic scenario, indicating that the current crisis is not comparable to that period, which saw a 95 percent decline in sector capacity. The current situation is more akin to previous crises, such as the aftermath of the September 11 attacks or the global financial crisis, where recovery took between 4 and 12 months.
Impact and Consequences
The impact of the crisis on Gulf airlines, which represent around 14.6 percent of international capacity, is expected to be temporary, with a quick recovery anticipated for aviation hubs in the region. However, airlines outside the region may struggle to fully compensate for the lost capacity.
Regarding fuel supplies, the sustainable reopening of the Strait of Hormuz would support flows of crude oil and refined products, including aircraft fuel. However, increasing refinery production outside the region will take time to adjust, with countries like India and Nigeria potentially contributing temporarily to bridge part of the gap.
Impact on the Arab Region
These developments are particularly significant for the Arab region, where many countries rely on aviation fuel supplies. If current conditions persist, travel and tourism could be significantly affected, negatively impacting local economies.
In conclusion, the current situation underscores the need to enhance regional and international cooperation to ensure the stability of energy supplies, especially in light of the recurring crises faced by the region.