Oil Holds Near Triple Digits as Hormuz Disruption Drives Airlines Into a Fuel Crisis

The leaders of the world's airlines gathered in Rio de Janeiro on Saturday for the annual meeting of the International Air Transport Association (IATA), and the dominant subject was the price of fuel. The war between the United States, Israel and Iran has restricted traffic through the Strait of Hormuz, the channel that carries close to a fifth of the world's seaborne oil, and the disruption has pushed jet fuel more than 120 percent above its level before the fighting began, according to industry data cited by Al Jazeera.

Carriers have responded by raising fares and cutting capacity. Airlines have removed roughly 9.3 million seats from schedules for June through September, and at least one low-cost operator has stopped flying entirely. In Thailand alone, carriers canceled about 3,800 flights as the price of Jet A-1 fuel tripled, lifting fuel from about 30 percent of airline costs to roughly half, the Russian agency TASS reported. The South China Morning Post described executives arriving in Brazil to confront the hardest test of the industry's recovery since the pandemic, a point made in the Guardian's note that the summit itself required flying thousands of delegates across the world during a fuel shortage.

Crude oil itself has been volatile rather than uniformly high. Brent settled near $93 a barrel on Friday, down about 2 percent on the day as traders weighed weaker global demand against the supply threat, even though Brent and West Texas Intermediate remain more than 45 percent above their late-February levels. The International Energy Agency has called the Hormuz interruption the largest supply disruption in the history of the global oil market.

This is a supply shock, not a demand boom. The price pressure comes from oil that is being kept off the market, and it raises input costs across transport, food and manufacturing at the same time central banks are still trying to bring inflation down. That combination, rising prices in the real economy set against fragile growth, is the difficult situation that complicates any return to cheaper credit.