In this week's edition of Let's Talk Energy, Susan Bell joined Noah to discuss the impact of the Middle East war on the jet fuel market. Together, they take the pulse of the aviation industry as it struggles to source enough fuel as the war dries up global supplies. Read a Q&A excerpt from the episode below, and listen or watch the full conversation here - Running on empty: How the Middle East war is squeezing jet fuel markets

Noah Brenner: Why have jet fuel prices risen even faster than crude?

Susan Bell: “Jet fuel is also in competition with gasoline and diesel, because refiners have to choose which products to make. Given the closure of the Strait of Hormuz, jet fuel is the product most constrained on supply. So, jet prices in the $4.50 per gallon range — and sometimes even higher — are entirely justifiable given the circumstances.”

How much supply has actually been lost?

“Middle East refiners shipping jet fuel through the Strait of Hormuz were providing somewhere in the order of half a million barrels a day — that volume was instantaneously lost when the strait closed. On top of that, run cuts at refineries in Asia have contributed roughly another half a million barrels a day of supply loss. We're looking at a net loss of around one million barrels a day of jet fuel — more than 10% of supply.”

Where is the pinch being felt most?

“The pinch is being felt most acutely in Asia. In the Middle East it’s less of a pinch than just a structural destruction of demand because flying is not safe in much of the region. In the Middle East, demand is down around 250,000 barrels a day from pre-war levels. In South and Southeast Asia, demand is down about 90,000 barrels a day. In Europe, demand is down about 150,000 barrels a day — primarily price-driven demand destruction, with airlines cutting flights because consumers aren't buying tickets at current prices.”

If the Strait reopens, how quickly does the jet market recover?

“If the Strait of Hormuz were to fully reopen today, we could be around 60 days away from markets getting into a much more normal position. Price impacts would come faster — sentiment drives prices heavily, and I'd expect diesel and jet fuel cracks to drop substantially on news that the strait is reopening.”

What does this mean for airline ticket prices?

“Airlines are layering on fuel surcharges of around $50 to $60 per ticket for a short-haul flight of four hours or less. Ticket prices are driven by supply and demand for seats — as airlines cut flights, prices rise because capacity falls. Not all ticket price movements are purely jet-fuel-driven.”

Will this crisis leave a lasting mark?

“This energy crisis is going to be written about in history books. The depth of the impact is almost comparable to what we saw in the 1970s oil embargoes. The benefit is that our modern economies are less exposed to energy as a share of GDP. On the one hand, we're much better prepared for this than previous generations were. On the other hand, I think we still have a rocky road ahead of us.”

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