Michael O'Leary, CEO of Ryanair, has warned that aircraft fuel supplies in Europe could face disruptions starting in early May if the U.S.-Israeli war against Iran continues. He confirmed that the risk could affect between 10% and 25% of the airline's fuel supplies during May and June.
According to Sky News, O'Leary stated that the company is "reasonably protected" through hedging for 80% of its fuel needs, but it is paying around $150 per barrel for the remaining 20%. He noted that the rise in oil prices is just part of the "broader repercussions" of the war, while the most pressing concern remains the availability of the fuel itself.
Details of the Situation
O'Leary mentioned that the company does not expect disruptions before early May, but the continuation of the war could increase the risk of supply interruptions in Europe during May and June. He clarified that he does not foresee flight cancellations at this time, but linked this risk to the ongoing closure of the Strait of Hormuz to oil tankers, which has led to rising energy prices since the outbreak of the war in late February.
According to the International Air Transport Association (IATA), the Strait of Hormuz typically sees about 20% of global oil supplies passing through, and it has become "almost impassable" following a collapse in tanker traffic by between 70% and 80%, creating direct repercussions for refined products such as aircraft fuel.
Background & Context
The International Air Transport Association (IATA) indicates that Europe is one of the most vulnerable regions, as 25% to 30% of its demand for aircraft fuel comes from the Arabian Gulf. A surge in insurance premiums and the withdrawal of some shipping capacities have tightened supply and raised product premiums, increasing concerns about actual shortages.
Additionally, the European continent relies on commercial stocks that typically cover just over one month of demand, explaining the sensitivity of European airlines to any prolonged disruption in supplies. This warning gains added significance as aircraft fuel accounts for about 30% of operating costs for airlines globally, making it the largest and most volatile cost item.
Impact & Consequences
IATA's fuel price bulletin shows that the average global price for jet fuel at refineries reached $195.19 per barrel last week, reflecting the extent of the pressures facing the industry even before any broader material disruptions in the European market. Ryanair's warnings align with other indicators in the sector, as easyJet CEO, Kenton Jarvis, stated that European consumers should expect a rise in ticket prices towards the end of summer.
This suggests that the effects of the war may gradually shift from corporate margins to travel prices themselves if the supply crisis continues. According to IATA, the current crisis highlights an urgent need to diversify sources of aircraft fuel, enhance strategic reserves, and improve coordination between governments, airlines, and refineries.
Regional Significance
The Arab region is a crucial part of the global energy supply chain, and any disruption in aircraft fuel supplies in Europe could impact air travel in the region. Additionally, rising fuel prices may negatively affect travel costs, impacting tourism and travel in Arab countries.
In conclusion, the current situation requires a swift response from governments and airlines to ensure the stability of fuel supplies and avoid potential crises in the future.