Jet Fuel Supply Shortage Drives Aviation Costs to Historic Highs

Airlines worldwide are navigating the worst jet fuel supply shortage in decades as refinery disruptions and geopolitical supply cuts push aviation fuel costs to record levels, squeezing margins and forcing widespread capacity reductions.

Lead

A convergence of geopolitical disruption and structural refinery disruption has produced the most acute jet fuel supply shortage in modern aviation history, driving airline industry fuel costs to levels that are reshaping schedules, fares, and full-year earnings across the global aviation sector. By mid-April 2026, jet fuel prices in European spot markets had surpassed $200 per barrel — up roughly 120% since late February — as the closure of the Strait of Hormuz severed a critical artery for Middle Eastern crude and refined product exports.

What Happened

The trigger was the closure of the Strait of Hormuz following U.S. and Israeli military operations against Iran beginning in late February 2026. The closure effectively removed more than 3 million barrels per day of Middle Eastern refining output from global supply chains, compounding a structural deficit years in the making.

Seven major refinery closures and conversions to renewable fuel production since 2019 had already erased approximately 1.2 to 1.3 million barrels per day of conventional crude processing capacity across North America and Europe. The International Energy Agency, in its May 2026 Oil Market Report, projected a net reduction of 2.4 million barrels per day in combined North American and European refining capacity between 2020 and 2026, with global crude throughputs expected to fall by 1 million barrels per day year on year — translating into roughly 200,000 barrels per day less aviation-grade kerosene available versus pre-conflict levels.

The loss of specialized Middle Eastern output, which produces a disproportionate share of aviation-grade kerosene, caused the jet fuel crack spread — the premium refiners earn for processing crude into jet fuel — to widen to unprecedented levels. Industry analysts project the crack spread will average above $50 per barrel for full-year 2026, compared with a historical range of $20 per barrel or below.

Airline Industry Fuel Costs: Carriers Bear the Burden

The financial impact has been immediate and severe. Delta Air Lines (DAL) reported its highest quarterly fuel expense on record in the second quarter of 2026: $4.4 billion, a 77% increase year on year, at an average all-in cost of $3.93 per adjusted gallon. Prices peaked at approximately $4.88 per gallon in early April. Delta's third-quarter guidance assumes fuel costs decline to approximately $3.15 per gallon — a roughly 20% reduction — though the airline has signaled that fare reductions will not accompany the fuel cost relief. CEO Ed Bastian stated on July 10 that the approximately 20% increase in domestic ticket prices reflects strong demand and disciplined capacity management, and that current fare levels are sustainable.

European carriers have responded with explicit fuel surcharges. Air France-KLM (AF) added €50 to long-haul round-trip fares. Low-cost carriers have been harder hit structurally: EasyJet (EZJ) projected a pretax loss of £540 million to £560 million — approximately $731 million to $758 million — for the first half of its 2026 fiscal year, a direct consequence of the jet fuel supply shortage hitting a business model with limited hedging flexibility.

Refinery Disruption: A Structural Problem Beneath the Crisis

Industry data underscore that the current crisis is not purely cyclical. Refineries in the United States and Europe have been operating above 92% utilization, leaving minimal surge capacity. The conversion of several large facilities to sustainable aviation fuel and renewable diesel production since 2019 has permanently reduced kerosene output, even as long-term SAF supply remains insufficient to substitute at scale.

The IEA warned in May that the refinery disruption could push European jet fuel inventories below the agency's critical 23-day shortage threshold as early as June, a level that historically triggers rationing protocols. The United Kingdom, which holds no strategic reserves of jet fuel, faces particular exposure. IATA's June 2026 Global Outlook for Air Transport flagged the market as approaching a "more dangerous zone" through July and August, when peak summer demand intersects with depleted inventory buffers and slow supply recovery.

Aviation Sector Outlook

The aviation sector outlook heading into the second half of 2026 reflects a market in transition rather than recovery. Fuel costs, while declining from their April peak, remain structurally elevated relative to 2024 and early 2025 levels. Delta's third-quarter operating margin guidance of 11% to 13%, achieved partly through disciplined capacity restraint rather than fuel cost normalization, illustrates the industry's new operating calculus: protect margin through pricing and schedule discipline rather than volume growth.

Airfares across major routes are running approximately 15% to 25% above year-earlier levels. Carriers with strong hedging programs and diversified route networks have demonstrated greater resilience, while low-cost and leisure-focused operators face continued pressure on first-half profitability. Capacity discipline is expected to persist through at least the third quarter, limiting the pass-through of any future fuel cost reductions to ticket prices.

Outlook

The jet fuel supply shortage of 2026 has exposed the fragility of aviation's fuel supply chain at the intersection of geopolitical risk and structural refinery contraction. With crack spreads remaining elevated and inventories below comfortable thresholds across key markets, airline managements face a prolonged period of elevated airline industry fuel costs even as crude prices moderate. For the aviation sector, the path back to pre-crisis margin structures depends on both the pace of Hormuz normalization and the medium-term recovery of global refining capacity — neither of which is imminent.