Analysis: Iata offers sober appraisal of oil shock

The exchange of missiles between Israel and Iran as Israel continued to strike Lebanon this week, followed by repeated exchanges between the US and Iran and the intervention in the Red Sea from Yemen, were stark reminders of the volatility in the region and that it extends way beyond the control of the US.

Hopes of a settlement to end the crisis and re-open the Strait of Hormuz, now closed for more than 100 days, remain stalled despite the desire of the Trump administration to move on. 

Iata spelled out the impact on aviation fuel prices in an updated report on the outlook for global airlines entitled ‘Energy in Crisis’ released at its annual general meeting in Rio de Janeiro last Sunday.

It described the current crisis as “a supply shock without historical precedent – the largest supply disruption in the history of the global oil market”.

The report noted: “Jet fuel availability is threatened, and the price has roughly doubled since late February. Competition for limited supply has intensified, particularly in Europe, the US West coast and parts of Asia, raising the risk of localised shortages alongside higher costs.

“The macro-economic backdrop is deteriorating as the energy shock feeds through to inflation, real incomes, and consumption. Higher fuel costs, airspace disruptions and longer routings are weighing on growth.”

Yet Iata observed: “Underlying willingness to travel has not collapsed, only moderated.” This had produced “a material slowdown” in growth “with pronounced regional divergence” but no contraction beyond the Middle East.

However, it went on: “The crisis exposes structural fragilities in the geographic distribution of refining capacity and underscores the case for accelerating the energy transition.”

The Strait of Hormuz “accounted for about 23% of global jet fuel exports”, with Europe the destination “for roughly 80%” of these, and the loss of this supply had triggered “fierce competition for the limited amount of jet fuel available”.

Iata warned: “The global energy system cannot withstand disruptions of this magnitude unless significant demand destruction takes place.”

It further noted: “Global refining capacity increased by around 16% over the past 20 years, while Europe’s refining capacity declined by 20%. Europe is now more vulnerable to supply disruptions.” 

Crucially, Iata argued: “This makes any predictions of a swift return to normal jet fuel flows illusory.”

In a separate report, management consultancy Bain & Co forecast the impact would extend for years, suggesting global air traffic in 2030 would remain at least 10 percentage points below the level forecast pre-February of 138% of 2019 levels.

Bain suggested: "Seasonality is expected to become more pronounced, with already-marginal winter routes more likely to be cancelled or see reductions in frequency."

A sobering sign of the more immediate impact on the UK economy came in a data release from the Office for National Statistics which indicated the number of potential redundancies in the week to May 24 was 62% up on the equivalent week in 2025.

The financial pressures on households and businesses are set to intensify.