The head of the world’s largest airline trade association issued a sobering warning on Wednesday, stating that even if Iran immediately reopens the strategically critical Strait of Hormuz following the recently announced ceasefire with the United States, jet fuel supply chains will likely require months to fully recover.
The warning comes as welcome news of a potential diplomatic breakthrough sent airline stocks soaring globally, yet it simultaneously tempers expectations of any swift return to normalcy in aviation fuel markets.
Willie Walsh, director general of the International Air Transport Association (IATA), which represents approximately 300 airlines accounting for 83 per cent of global air traffic, delivered the cautionary assessment to reporters in Singapore.
He emphasized that while crude oil prices are expected to fall following the ceasefire announcement, jet fuel costs are likely to remain elevated due to the significant damage and disruption inflicted upon Middle Eastern refining capacity during the conflict.
Jet Fuel: Airlines’ Second-Largest Expense
Fuel represents the second-largest expense for air carriers after labour costs, typically accounting for approximately 27 per cent of operating expenses, according to IATA data.
This substantial cost exposure means that even modest fluctuations in jet fuel prices can dramatically impact airline profitability, route viability, and ultimately ticket prices for consumers worldwide.
Prior to the conflict, jet fuel prices generally moved in tandem with crude oil benchmarks. However, since the escalation of hostilities involving Iran, jet fuel prices have more than doubled, far outpacing the 50 per cent rise in crude prices that occurred before the two-week ceasefire news emerged.
This divergence reflects the unique refining and supply chain disruptions that have disproportionately affected jet fuel compared to other petroleum products.
Strait of Hormuz Closure and Its Devastating Impact
Iran’s closure of the Strait of Hormuz, implemented as part of retaliatory moves during the war, has severely choked global supplies of jet fuel. The strait serves as a maritime chokepoint through which approximately 20 per cent of globally traded petroleum passes daily, including significant volumes of both crude oil and refined products such as jet fuel, gasoline, and diesel.
The news of a ceasefire and the possibility of safe passage through Hormuz sent airline stocks soaring across Asian markets. However, Walsh cautioned that the physical realities of refining capacity cannot be restored overnight, regardless of how quickly diplomatic agreements are reached.
Recovery Timeline Comparisons: Not Another COVID-19
Walsh was careful to distinguish the current crisis from the unprecedented devastation of the COVID-19 pandemic, which effectively grounded the global aviation industry for extended periods. He dismissed direct comparisons between the two events.
“This is not similar to COVID,” Walsh stated firmly. “This is not a crisis anywhere close to what we experienced during COVID. In COVID, capacity reduced by 95 per cent because borders closed. We’re nowhere near that.”
Instead, Walsh drew parallels to previous major aviation shocks, including the economic downturn of 2008-2009 and the aftermath of the September 11, 2001 terrorist attacks. These historical precedents offer more relevant guidance for recovery timelines, he suggested.
“Post-9/11, the recovery took about four months,” Walsh explained. “In 2008-2009, it was probably 10 to 12 months.” These timelines, he indicated, are more comparable to what the industry faces today than the prolonged and uneven recovery from the pandemic.
Airline Shares Surge on Ceasefire News
Despite the cautious warnings about supply recovery timelines, financial markets reacted enthusiastically to the ceasefire announcement. Airlines across Asia saw their share prices jump sharply as investors priced in expectations of lower fuel costs and reduced operational disruptions.
Australia’s Qantas Airways saw its shares surge more than 9 per cent. Air New Zealand rose over 4 per cent, while Hong Kong’s Cathay Pacific climbed 5 per cent. India’s IndiGo, the country’s largest airline by market share, soared as much as 10 per cent in a single trading session. These gains reflect the market’s assessment that the worst of the jet fuel supply crisis may be behind the industry, even if full recovery remains months away.
Operational Disruptions Already Underway
The jet fuel supply squeeze has already forced airlines across Asia to implement significant operational changes. Carriers have been cutting flight frequencies, carrying extra fuel from their home airports on outbound legs, and adding refueling stops on longer routes to avoid relying on fuel supplies from affected Middle Eastern hubs.
These workarounds carry their own costs and inefficiencies. Carrying extra fuel reduces payload capacity for passengers or cargo, while additional refueling stops increase flight times, crew costs, and airport fees. For an industry operating on razor-thin profit margins, these incremental costs add up quickly.
Gulf Carrier Capacity: Temporary Hit, Fast Recovery Expected
Walsh addressed the specific impact on Gulf carriers—airlines such as Emirates, Etihad, and Qatar Airways—which collectively accounted for 14.6 per cent of international aviation capacity last year. He characterized the hit to their operations as temporary.
“Some of that capacity will be replaced by airlines outside of the region,” Walsh acknowledged. However, he cautioned that “there’s no way they can replace the entire capacity that was provided by the Gulf carriers.” The unique geographic advantage of Gulf hubs, positioned to connect East and West with efficient single-stop itineraries, cannot be easily replicated by carriers based elsewhere.
Nevertheless, Walsh expressed confidence in a rapid recovery for Gulf hubs once the strait reopens and refining capacity stabilizes. “I fully expect the Gulf hubs to recover and recover quickly,” he said. He noted that data from April and May would provide a clearer, more detailed picture of the actual scale of disruption and the pace of recovery.
Refining Capacity: The Core Bottleneck
The fundamental challenge, according to Walsh, lies not in crude oil supply but in refining capacity. Even if the Strait of Hormuz reopens immediately and remains open, the physical damage and operational disruptions to Middle Eastern refineries will take time to repair.
“It will take some time for refineries outside of the region to adapt and increase jet fuel production,” Walsh explained. He pointed to India and Nigeria as countries possessing the capacity to increase refined product output in the interim. Both nations have existing refining infrastructure that could potentially be ramped up to fill part of the supply gap left by disrupted Middle Eastern production.
Walsh also expressed hope that China and South Korea would resume exports of refined products once crude oil flows normalize. Both countries are major refining centers with the technical capability to produce jet fuel to international specifications.
“So there is refining capacity available once we get the crude oil flowing,” Walsh said. He noted that the current elevated crack spread—the difference between the price of crude oil and the price of refined products derived from it—provides a strong economic incentive for refineries worldwide to increase jet fuel production specifically.
Crude Oil Prices Fall Below $100
The ceasefire announcement has already had a dramatic effect on crude oil markets. Oil fell below $100 per barrel after US President Donald Trump confirmed that he had agreed to a two-week ceasefire with Iran, subject to the immediate and safe reopening of the Strait of Hormuz. This decline represents a significant reduction in the geopolitical risk premium that had been built into oil prices during the height of tensions.
However, as Walsh noted, the pass-through from lower crude prices to lower jet fuel prices will be neither immediate nor complete, given the refining bottleneck. Jet fuel prices are likely to remain somewhat elevated even as crude continues to fall.
Implications for Pakistan and Other Import-Dependent Nations
For countries such as Pakistan, which rely heavily on imported jet fuel to keep their national airlines and private carriers operating, the prolonged recovery timeline carries serious implications. Pakistan International Airlines (PIA) and other carriers operating to and from the country have already been affected by rising fuel costs and supply uncertainties.
An accompanying report noted that Pakistan’s petrol levy had hit a record high of over 160 rupees, while jet fuel prices have surged dramatically. Any relief from the ceasefire will take time to filter through to domestic fuel markets, and the refining capacity constraints identified by Walsh suggest that jet fuel prices may remain elevated even as petrol and diesel prices potentially decline more quickly.
Cautious Optimism Tempered by Realistic Timelines
The Iran-US ceasefire and the prospect of the Strait of Hormuz reopening represent genuinely positive developments for the global aviation industry. Airline stocks have responded accordingly, and the worst-case scenarios of prolonged conflict and sustained strait closure have been averted, at least for now.
However, Willie Walsh’s warnings serve as an important corrective to any expectation of immediate relief. The disruption to Middle Eastern refining capacity is real, physical, and not solvable by diplomatic agreements alone.
Months, not weeks, will be required to restore jet fuel supply chains to pre-conflict levels. For airlines, passengers, and economies dependent on air travel, patience will be required as the industry navigates this extended recovery period.
