Jet fuel prices hit 28-month high as Iran war squeezes EU airlines

Soaring jet kerosene prices and airspace closures caused by the U.S.-Israeli war on Iran are creating growing headaches for European airlines.

The EU imports half of its jet fuel from the Persian Gulf, whose main exit point is the Hormuz Strait that’s currently blocked by Iran’s threat to hit any vessel that tries to pass it.

As a result, jet fuel prices jumped to a 28-month high of $1,001.50 per ton in Europe, according to the specialized publication Argus, calling it a “record premium.”

That puts airlines in a very difficult position, as they were able to recover from the Covid-era collapse of air travel thanks to cheap fuel.

Presenting Lufthansa’s results for last year, the airline group’s CFO Till Streichert said on Friday that “low fuel costs had a positive effect. Our fuel costs fell by more than half a billion euro compared with the previous year.”

Despite concerns over rising fuel prices, Lufthansa is confident that its fuel reserves will protect the airline from higher costs.

But if gridlock at sea lasts, it could dry up the supply of kerosene while sending prices even higher.

Fuel worries come on top of concerns that the war will also shut flight paths between Europe and Asia.

The EU Aviation Safety Agency on Friday extended its request for airlines to avoid the airspace of 11 countries in the Gulf region including crucial air hubs like Dubai, Qatar and Kuwait as well as Iran, Iraq and part of Saudi Arabia.

The original recommendation — issued on Feb. 28 when the U.S. and Israel attacked Iran — is now valid until March 11.

“All-altitude capable air-defence systems, cruise and ballistic missiles and the use of air assets … make the entire affected airspace vulnerable to spill-over risks, misidentification, miscalculation and failure of interception procedures,” the EASA bulletin said.

That recommendation leaves only a very narrow path for many airlines to fly between Europe and Asia — forcing them along Turkey’s northern Black Sea coast, then over Azerbaijan and the Caspian Sea. European carriers can’t fly over war-torn Ukraine and they’ve also been barred from Russian airspace since Moscow invaded Ukraine four years ago.

However, Turkish, Chinese and other Asian competitors can still overfly Russia, creating growing competition problems for EU carriers.

The Ukraine war closures already forced airline groups such as Lufthansa and Air France-KLM to reroute their long-haul flights to and from Asia — increasing fuel and staffing costs.

Now, even that narrow passage across Azerbaijan is at risk after the country was reportedly targeted by a drone strike near the Iranian border.

In response, the Baku government closed the southern half of the country’s airspace but left the rest available to airlines.

“We continue to monitor closely the overall risk and threat situation in the region and its impact on the safety of airspace, including this event,” said EASA spokesperson Janet Northcote after an attack that Azerbaijani President Ilham Aliyev called an “act of terror” from Tehran. 

The Iranian government denied responsibility for the strike.