Jet fuel supplies put at risk by Red Sea crisis
AIRLINE bosses are monitoring developments in the Red Sea as attacks on shipments through a vital trade route threatens the supply of jet fuel.
Analysts warned that holidaymakers face higher airfares if the continued disruption triggered an increase in the cost of the fuel.
Malvyn Tan, head of commercial fuel at the International Air Transport Association, which represents airlines, said: “With shipping and insurance costs going up, the price of jet fuel is expected to be driven up by these events.”
Mr Tan said there were not yet any signs of disruption to the availability of jet fuel in the UK or elsewhere, but that IATA is “closely monitoring the situation in the Red Sea and around the Suez Canal”. Europe’s jet fuel supplies are more vulnerable to the Red Sea chaos than any other commodity import on the continent, Matthew Wright, an analyst at Kpler, said, with almost a third of imports coming through the Suez Canal route last year.
Three quarters of the jet fuel in transit to Europe is travelling from Asia and the Middle East, meaning it would normally come through the Suez Canal, Mr Wright said. This is a total of 4.6m barrels of jet fuel, which is being carried by nine ships. Of this cargo, more than half of it was being held up yesterday while shipping companies decided whether or not to reroute around the conflict zone, he added.
Attacks carried out by Iran-backed rebels in retaliation for Israel’s war in Gaza have started to disrupt energy supply chains after a wave of tanker companies, including the energy giant Shell, suspended transit through the Red Sea indefinitely.
Anna Borg, chief executive of Vattenfall, one of Europe’s biggest power companies, said yesterday that disruption in the Red Sea crisis was a “major concern” for energy supply chains.
More than 500,000 barrels are already being diverted around the Cape of Good Hope, with 387,000 barrels now confirmed on transit through the Red Sea by comparison.
Global jet fuel prices climbed by 2.3pc in the week to Jan 12, according to IATA, but this was still down year on year. Cristina Haus, editor of Jet Fuel Intelligence, said markets have not yet priced in the scale of the risks and prices will rise as the conflict drags on. “Markets have been relatively sanguine about what is going on, but day by day it is getting worse and it could really erupt into a major Middle Eastern conflagration,” Ms Haus said.
Europe is particularly exposed to disruptions in its jet fuel supplies because it will not be able to source imports from elsewhere, she added. This is because the disruptions are hitting just as some large US refineries are doing extensive maintenance work. However, oil companies have extensive stores that they will be able to use to offset any delays in deliveries, Ms Haus said.
Airports also typically keep two or three days’ worth of fuel supplies. But Heathrow has a much smaller storage capacity in proportion to its airport traffic, according to Ms Haus. “Heathrow is, to my knowledge, more vulnerable than any other airport.”
A Heathrow spokesman said the airport was not suffering any supply issues. Some airlines could also be more at risk than others. Caroline Bain, at Capital Economics, said: “Some of them buy fuel for an entire year at a certain price, while others don’t hedge at all.”
Separately yesterday, Shell said it would invest in the Victory gas field in the North Sea to maintain domestically produced gas for Britain’s homes.
Victory will come on line in the middle of the decade and is expected to produce enough gas to heat nearly 900,000 homes a year.
‘Markets have been relatively sanguine about what is going on, but day by day it is getting worse’