Jet fuel markets and the Middle East war with Susan Bell

Let's Talk Energy — Jet Fuel Under Pressure Wednesday, May 6, 2026 SPEAKERS NB Noah Brenner — Host, Let's Talk Energy SB Susan Bell — Senior Vice President, Commodities - Oil, Rystad Energy [00:00] Noah: This is Let's Talk Energy, your go-to podcast for smart energy insights. I'm Noah Brenner. It's Wednesday, May 6th. The Strait of Hormuz remains largely closed. Brent futures prices are up by more than 70% since the start of the year, but jet fuel prices have outpaced crude and are up by more than 100% in Europe and 110% in Asia over their 2025 averages. That situation has caused the CEO of United Airlines to warn ticket prices may have to increase by as much as 20%. Lufthansa has canceled 20,000 flights it said were no longer profitable. In the US, the budget carrier Spirit Airlines stopped flying altogether after declaring bankruptcy. And finally, Fatih Birol, the head of the International Energy Agency, has warned that Europe could start running out of jet fuel in as little as six weeks. So how has the war in the Middle East impacted jet fuel supplies, and why has the price squeeze been even worse for jet than for crude? How are refiners reacting to this shortage, and do high prices necessarily mean high margins for that sector? And finally, what can countries do, short of grounding flights altogether, to manage this market and help consumers cope with the run-up in prices? Here to tell us whether you should give up your dream of jetting off on a summer getaway and instead settle for a vacation closer to home, we have Susan Bell, a Senior Vice President and product market expert in our Calgary office. Susan, welcome to the program. Susan: Thank you for having me, Noah. It's a pleasure to be here. Let's talk energy. Noah: Now, I quoted a few numbers at the top, but can you set the scene for us in terms of the price trend we're looking at for jet fuel since the start of the war? Susan: Jet fuel costs have effectively doubled since the beginning of the war. Jet is typically a premium product — a very high quality, high specification product. Depending on the type of refinery you're running, it can be a very expensive product to manufacture because it typically takes a lot of hydrogen addition to meet specifications. So it's no surprise that prices have run up. Jet fuel is also in competition with both gasoline and diesel because refiners have to choose between which products to make. Because of the closure of the Strait of Hormuz, jet fuel is the one product most constrained with regard to supply. Jet fuel prices now in the $4.50 a gallon range — and sometimes even higher — are really perfectly justifiable. [04:00] Noah: How much jet fuel supply has been lost due to the closure of the strait? Was it all lost at the beginning, or has it evolved over the course of the conflict? Susan: It wasn't all lost at the beginning. The Middle East refiners that ship jet through the Strait of Hormuz were providing the market somewhere in the order of half a million barrels a day of jet fuel that left the region through the strait. That volume was instantaneously lost. The other impact is the run cuts at refineries in Asia, which contributed about another half a million barrels a day of supply loss. So we are seeing a net loss of one million barrels a day of jet fuel supply. That's very significant because jet fuel demand was expected to be about 8 million barrels a day this year — it's more than 10% of supply that was lost. Noah: Are we also seeing damage to refineries that might otherwise have been producing jet fuel in the Middle East? Susan: Yes. There is about 2.4 million barrels a day of refining capacity that has been taken offline in the Middle East, and most of that is the result of damage. The largest affected refinery is the Ruwais Refinery in the UAE, which has capacity of about 840,000 barrels a day. Based on our Rystad Energy assessments, that refinery yielded about 14% jet. That's a significant hit. When you look at the region's average jet yield of around 13% and apply that to the 2.4 million barrels a day of lost capacity, we're looking at a total loss of about 300,000 barrels a day due to refinery damage alone. The real problem, though, is that volume can't get out of the strait — that's what's causing the crisis globally. The lost production within the region itself is actually balanced by lost demand in the region, because so much of the Middle East has seen a drastic reduction in aviation activity due to the conflict. Noah: Give us a snapshot globally of what demand looks like. I know that here at Rystad Energy we use real-time data from sources like satellites to track what's happening on the ground — and in the air, in this case. Susan: We had expected jet fuel demand to come in at 8 million barrels a day for 2026, which was strong growth of 400,000 barrels a day. We're now expecting that demand growth to be only 200,000 barrels a day, because of the significant demand trough we're seeing in March, April, and May. Even though we're forecasting jet fuel demand to continue to grow this year, that growth is somewhat in question depending on the duration of the conflict. Our current assumption is that the strait will begin to reopen in mid-June and flows will largely normalize by sometime in September or October. As soon as the strait opens, we would expect jet fuel supplies to recover quite quickly, which will help rebalance global markets. But if the strait stays shut for longer, the jet fuel demand decline gets steeper — and instead of year-on-year growth, we could see year-on-year declines. [08:00] Noah: Where is the pinch being felt the worst? Susan: Certainly in Asia. In the Middle East, it's less a pinch than a structural destruction of demand — it's simply not safe to fly in much of the region, so airlines have stopped service. The demand destruction we're seeing is concentrated in the Middle East and Asia. Middle East demand is down about 250,000 barrels a day from pre-war levels. Pre-war demand was around 650,000 barrels a day; it fell to around 200,000 in the first weeks of the conflict, and has since crept back up to around 400,000. In Asia, demand declines are centered in South and Southeast Asia. China is largely insulated from the supply shock, though there is some reduction in tourism driven by price sensitivity. Demand in South and Southeast Asia is down about 90,000 barrels a day from pre-war levels. In East Asia — Japan — we're seeing declines of about 10,000 barrels a day, which is primarily a reduction in tourism rather than a supply issue. Japan is supplementing its refining industry with crude oil strategic petroleum releases to keep refinery runs whole. In Europe, demand is down about 150,000 barrels a day — this is price-related demand destruction, with airlines cutting flights because consumers are not bearing the higher ticket prices. Noah: Is there a seasonal component here as well? Are we seeing different impacts because we're heading into the travel season? Susan: There is a seasonal component. Summertime is the jet fuel demand season — that's when so much tourism happens, with kids out of school and families traveling. This summer is going to be crimped by high jet fuel costs. We do expect the seasonal demand growth to be very muted this year. Noah: Is there any impact from military activity? Obviously, a lot of planes in the air. Can we see that in the numbers, or is it washed out by demand destruction elsewhere? Susan: The military is a significant consumer of jet fuel, but it's really difficult to disaggregate those numbers. US military jet fuel demand, for example, is about 8% of total US jet fuel demand — around 140,000 barrels a day. Even if military demand were to go up 20%, that's only about 30,000 barrels a day. The impact of tourism demand destruction far eclipses that. [12:00] Noah: Oil is actually falling today — on the day we're recording — on optimism that Iran and the US could reach some kind of deal. How would we think about a market restart should flows normalize and the situation in the Middle East stabilize? Susan: There is going to be some jet fuel supply that is lost in the interim because of the damaged refineries in the Middle East — we assess that at around 300,000 barrels a day. The timing of those repairs varies. Some refineries may come back fairly quickly because a number have only curtailed production rather than shutting down entirely. If the damage is isolated to tank farms or non-critical processing units, production could recover quickly. Of the 300,000 barrels a day of lost supply from Middle East outages, maybe half could come back fairly fast. In Asia, refineries will be able to recover runs fairly quickly once the Strait of Hormuz reopens, because there will be a flood of crude oil flowing out of the strait. Even so, it will still take 30 to 60 days for those flows to normalize and for Asian refineries to ramp up throughputs. If the strait were to fully reopen today, we could be roughly 60 days away from markets getting into a much more normal position. There will also be fairly immediate price impacts, because sentiment drives prices heavily — I would expect diesel and jet fuel cracks to drop substantially on any news that the strait is reopening. Noah: How are airlines managing the cost increase? How is the industry dealing with this? Susan: Each airline has different risk management mechanisms. A lot of European airlines hedge their fuel costs out about a year, so they're largely not directly exposed to current prices. Some US carriers have decided not to hedge, so they are exposed. On ticket prices, what airlines do is layer on a fuel surcharge — we're seeing surcharges now in the order of $50 to $60 for a short-haul flight of four hours or less. To put some math to that: a Boeing 737 MAX 8 consumes about 750 gallons of fuel per hour. The jet fuel cost for a four-hour flight, at current prices, works out to roughly $60 to $70 per person. The fuel cost is significant, but it's not the single largest cost in offering air service. Some ticket price movements are not purely driven by fuel — supply and demand for seats plays a major role too. [16:00] Noah: Does it make sense for carriers to get more creative here? Delta owns a refinery outside Philadelphia. Should other carriers consider buying refining assets? Susan: If you could name the two toughest businesses to be in, they'd be refining and aviation. Put them together and you need a very strong constitution to handle it. Delta's strategy of physical integration was unique — the Trainer Refinery does provide some jet fuel, but certainly not all that Delta needs. It's a physical hedge to a certain extent, but it doesn't give complete price protection. I'm not sure airlines in general will want to buy into refining. Hedging forward is a good way to protect revenues and give certainty on costs — but it also carries risk, in that if your competitor didn't hedge and prices fall, they can undercut you. Nothing is risk-free in this industry. I think what we've seen in the airline industry for a number of years is that they've gone to the absolute bare bones on service, and customers are starting to push back. Airlines are now realizing they need to move toward a more service-oriented model — offering more bespoke experiences, even in economy, to encourage customers to choose their airline. Loyalty programs have become enormously important to that model. Noah: What can countries do? We hear about strategic petroleum reserves for crude — are there strategic reserves of jet fuel, and have they been tapped? Could countries cut taxes? Susan: Countries do have strategic petroleum reserves of jet fuel. The European Union has a jet fuel SPR. The interesting thing is that it's mainly OECD countries that hold SPRs — India and China hold them as well. OECD countries that are net importers of petroleum are mandated to hold an SPR of 90 days' worth of petroleum imports. But jet fuel is not a regulated product under that mandate — the 90-day requirement doesn't have to be allocated by product. So Europe has a lot of SPR for diesel, some for gasoline, some for crude, and relatively little for jet. The European Commission came out a few weeks ago with a plan on jet fuel supply reliability, one proposal being to make the jet fuel SPR mandatory rather than voluntary. Our expectation is that Europe is already drawing down its jet fuel SPR during this period. [20:00] Noah: Have exporting countries curbed exports to protect domestic supply? Has that impacted the market? Susan: We have seen countries curb exports. China is a major supplier to its neighbors, and its jet fuel exports are down substantially. They've taken the strategy of reducing crude runs to keep their domestic supply-demand balance feasible. They have massive storage — around 1.3 billion barrels of crude oil storage — but they're choosing not to tap into that to maintain high refinery runs. Rather, they're running refineries to keep domestic supply whole and reducing exports to manage their crude supply. That said, they're not cutting off exports altogether — they're being very judicious about it. Interestingly, about a month or so ago, the Chinese government allowed state-owned refiners to start drawing down commercial crude reserves. Rather than running that crude in their own refineries — where margins are deeply negative because they're selling into a price-controlled market — they resold the crude oil. That helped the Pacific region source barrels, which led directly to a softening of the Dubai price benchmark and ultimately jet fuel prices, since they're priced as a differential to crude. South Korea is another major jet fuel exporter that has cut exports significantly. This is bringing the impact much closer to home — California was importing about 100,000 barrels a day of jet fuel from South Korea, and that has largely dried up. California isn't yet in a critically constrained position; the weekly EIA data shows jet fuel inventories are still relatively healthy. But with South Korea no longer supplying California in the near term, California needs alternative sources, which is where the Jones Act waiver becomes relevant. We're seeing ships moving from the US Gulf Coast to California to bring in refined products that would normally come from the Pacific basin. Noah: For those not familiar — waiving the Jones Act essentially allows foreign-flagged vessels to move goods between US ports, which is normally prohibited? Susan: That's exactly it. There are very few Jones Act vessels operating in the clean products market. Those that do are largely spoken for, delivering into Florida and the southern US from the Gulf Coast. Moving volume from the Gulf Coast into California requires incremental transportation capacity, which is why waiving the Jones Act allows foreign-flagged vessels to come in and fill that gap. [24:00] Noah: I've seen conflicting reports on how this crisis is impacting refining margins. If jet fuel prices are high, does that mean refiners are also making more money? Or is that being outweighed by the cost of crude and transport? Susan: There was a period of about a week in late March where the prompt price of crude skyrocketed. We saw extreme premiums for prompt physical supply over the paper markets, and for certain refinery configurations, margins did go briefly negative. But in general, refineries with medium to complex conversion capabilities have benefited significantly from the high crack spreads. Despite high crude prices, they have generally been quite economic. With Asia having to cut runs due to lack of crude supply and with reduced product exports through the Strait of Hormuz, there's strong incentive for any refinery that can access crude to run at maximum capacity. We're certainly seeing that in the US and in Europe. There's a lot of money to be made turning crude into light products like gasoline, diesel, and jet. Less opportunity if you're producing fuel oil. Noah: Can they just make more jet and less of everything else? Susan: They're somewhat handcuffed by the capabilities of their facilities and by the natural jet yield in crude oil. Refineries without much conversion capacity can only make jet by adjusting cut points on their crude towers — widening those cut points to maximize jet yield starts to degrade quality and sends the fuel off-spec. They need to keep cut points fairly stable. Refineries with more conversion capacity could potentially dial up hydrocracker severities or push more material to their cokers, but with those running near maximum rates already, their options are limited. We're talking perhaps one to one-and-a-half percent yield variability — not five to ten percent. Noah: There are EU sanctions on products derived from Russian crude coming back into the EU. Is there any chance of sanctions relaxation as part of the global response to this shortage? Susan: I do think we will see some ongoing sanctions relief on Russian barrels — perhaps not as a general license, but individual cargos being de-sanctioned and deemed legal. For Europe, it's a difficult conversation given that the Ukraine conflict is right on its doorstep. But de-sanctioning Russian crude into India and China will likely continue during this crisis. That does pose a challenge for Europe, because India is a supplier of refined products to the global market and could become a very important supplier in this environment. If Indian refiners can't segregate their Russian crude runs — and they're predominantly running Russian barrels now, given reduced Middle East supply — it puts Europe in a bind. If Europe can't certify diesel barrels as free of Russian crude, in theory they can't import them. And if they can't import diesel, they have to manufacture it domestically — which means stealing from their jet fuel pool. [28:00] Noah: As we often talk about with energy crises, they tend to lead to longer-term changes — in policy, in behavior. Do you see lasting changes coming to the jet fuel market as a response to this? Susan: I think some nations that did not have SPRs will be more interested in developing them — particularly in Asia, though affordability is the question. I do think we're likely to see some consolidation in the aviation industry. Some budget carriers may not make it through. We're already seeing it — with Spirit going under, JetBlue and others are picking up routes. That's consolidation in effect. Ticket prices, once they go up, tend to be sticky. They won't come down quickly. That may be bad from the consumer's perspective, but it may enable airlines to offer a product that is more customer-centric. We might see air travel shifting away from being a pure utility and becoming something more bespoke again. In terms of energy transition, I don't think we'll see significant change in the jet fuel space anytime soon. But high diesel and gasoline costs will drive energy transition in nations that can afford it. We're seeing higher EV adoption rates in Europe, and I would attribute a lot of that to high energy costs. We have sales data through March, and March was a month of strong diesel prices — and battery electric vehicle sales went off the charts. Germany has also reinstituted its EV subsidy. Europe is encouraging consumers to replace oil furnaces with heat pumps, which transitions demand from liquids to electricity. Solar and wind power, in this energy price environment, could be very competitive. The question is whether nations that need to make energy transition decisions can actually afford either option. When you think of sub-Saharan Africa, for example — they couldn't really afford oil even when prices were lower. Higher oil prices don't make renewables more affordable to those nations in absolute terms, just relatively more so. [32:00] Noah: If prices are likely to be higher — if these higher ticket prices are sticky, if we see consolidation — what have we learned about price sensitivity in the jet fuel market specifically? Could this crimp our demand projections over the next five years? Susan: I do think consumers are sensitive to these price swings. Some jet fuel demand is structural and somewhat price-insensitive — getting on a plane to reach a family member in crisis, for instance, is a cost that just has to be borne. But discretionary travel — the flight to a European vacation from North America, or the trip to Hawaii from northern Canada — is a decision made based on affordability. If prices stay high, we would expect to see some demand destruction. This is all set against a landscape of very strong aviation demand growth over the past couple of years, some of it still driven by COVID recovery, with trans-Pacific travel still not fully recovered. The energy crisis is broadly recessionary — bad for economies and consumers globally, reducing spending power and ultimately suppressing demand for goods and services. If we see unemployment rise as a result of that recession, we'll see significant reductions in jet fuel demand because the discretionary tranche simply goes away. If employment holds, demand will still grow — just more slowly than originally expected. Noah: Any parting thoughts? What haven't we covered that you think is important? Susan: The energy crisis in general is something that will be written about in history books. In the past six years, we've now lived through two major world events that are truly setting history. How this all pans out is still unknown. I would argue the depth of the impact is almost comparable to what we saw in the 1970s oil embargoes. The benefit is that modern economies are less energy-intensive in terms of GDP and cost. So we're much better prepared in some ways. But I still think there's a rocky road ahead. Noah: Susan, thank you so much. I was hoping for better news on summer ticket prices — but as you said, we're in historic times. Thank you so much for joining us. Susan: My pleasure. Thank you for having me. Noah: Let's recap. Increases in the price of jet fuel have outpaced benchmark Brent as the closure of the Strait of Hormuz, reduced refinery runs in Asia, and limits on exports have all cut into supply. This is generally good news for refiners who will make more money processing crude oil, but their ability to increase jet fuel yields is fairly limited. Unfortunately for consumers, a shift in sentiment due to a ceasefire could have a rapid impact on oil prices, but high prices for jet fuel could persist for longer as trade flows, refinery operations, and global markets will need time to normalize before airline ticket prices start to fall. Thanks for listening to Let's Talk Energy. This podcast is a production of Rystad Energy, produced by Elliott Busby and Boda Ogh. Check out the show notes for further analysis on the topics we've discussed and find us on social media — we're at Rystad Energy on all major platforms. While you're there, please leave us a review and hit that subscribe button. You can also keep up to date at our website. If you'd like to send us a question or comment on today's show, email us directly at podcast@rystadenergy.com. And most importantly, don't forget to join us next week for more Let's Talk Energy.