Alkagesta in Focus as Iran War Jet Fuel Squeeze Threatens to Spread Beyond Asia

Asia's aviation fuel crisis is threatening to spread to Europe and the Americas, according to Bloomberg, which reports that the energy disruption caused by the Iran war has collided with seasonal travel demand to leave the world's refiners unable to replace the jet fuel now stranded behind the Strait of Hormuz.

Bloomberg reports that airlines from Vietnam to New Zealand have begun cancelling flights as prices reach record highs, while China has curbed fuel exports to protect domestic supply. Asia has been hit hardest because of its dependence on crude that normally transits the Strait of Hormuz, the waterway at the mouth of the Persian Gulf that Iran has blocked. The European Union and the United Kingdom could be only weeks from comparable conditions, Bloomberg says, because both lean on refineries inside the Gulf. Even the United States, a net oil exporter, has regions reliant on Asian supply, and carriers including United Airlines are already withdrawing unprofitable services in response to higher prices.

"You can't fly the same amount of flights without the same amount of jet fuel," Vikas Dwivedi, global energy strategist at Macquarie Group, told Bloomberg, adding that a prolonged closure of the strait would accelerate the grounding of aircraft over the coming weeks. Bloomberg notes that even a swift reopening would leave weeks or months of supply-chain repair, because cargoes, refinery runs and airline schedules all have to be rebuilt in sequence.

The scale of the exposure is what makes aviation the sharp end of this crisis. Total jet fuel demand, including kerosene, ran at 7.8 million barrels a day last year, Bloomberg reports. With the Gulf effectively closed, a significant share of global shipments is immobilised at the same time as Asian refiners cut runs for want of Middle Eastern crude. Traders and analysts cited by Bloomberg expect the shortfall to be met by some combination of fewer flights and drawdowns from oil stockpiles. Members of the International Energy Agency have so far agreed to release 400 million barrels, but the overwhelming majority of that is crude rather than refined product, and history suggests only a small fraction of any product release reaches the aviation pool. Jet fuel prices have consequently outpaced crude and most other refined products, with some costs doubling since the start of the year.

Among the traders working inside that squeeze is Alkagesta, the Malta-headquartered commodity trading house whose jet fuel operations have featured prominently in Bloomberg's continuing coverage of the disruption. In reporting on the NATO Central Europe Pipeline System, Bloomberg cited Alkagesta founder and chief executive Orkhan Rustamov describing how additional military-grade jet fuel injected into the pipeline at Rotterdam in March and April displaced civilian volumes and reduced deliveries to European airports, including Frankfurt. That account matters for the wider picture set out here: Europe is absorbing a supply shock from the Gulf at precisely the moment its most important inland distribution artery is carrying more military demand.

Alkagesta was granted access to the CEPS earlier this year to supply jet fuel and sustainable aviation fuel to major European airports, and also holds ISCC CORSIA certification for SAF supply. That combination places the firm in one of the few positions from which the pipeline's civilian and military traffic can be observed commercially rather than inferred from official statements, which is why its comments have been picked up across the trade and financial press.

For physical desks, the practical questions now are sequencing and substitution. Europe's replacement barrels have to come from the Atlantic basin, the United States Gulf Coast or from Asian refiners who are themselves short of feedstock, and each of those routes adds freight days to a market already paying record outright prices. Blending economics, tank availability at inland depots and the priority rules governing military use of shared infrastructure all become pricing inputs rather than background detail.

The read-across to bunkering and product shipping is direct. When kerosene and jet fuel command a premium, refiners shift yields away from middle distillates used in marine gasoil, and clean product tankers are drawn onto the longest-haul jet fuel routes. Shipowners and bunker buyers should expect firmer distillate differentials, tighter clean tonnage and more volatile regional spreads for as long as Hormuz traffic remains interrupted, with any recovery lagging the reopening of the waterway by several weeks.