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The start of 2026 brought the fourth anniversary of Russia’s invasion of Ukraine, as well as new geopolitical tensions in the Strait of Hormuz, testing the resilience of the aviation industry, particularly in the global aviation fuel market[1]—six months since the start of the initial action, we look at some of the broader effects on the industry.

In June of this year, the International Air Transport Association (IATA) in an analysis of the first half of 2026 stated that fuel shocks may halve the profitability of the global aviation industry compared to 2025.[2] Fuel is the principal and largest operating cost of airlines, typically making up 20–40% of all outgoing expenses.[3] As the global economy reckons with the aftereffects of this year’s geopolitical instability, there may be decisions in the short and long term for the global aviation industry to mitigate any potential instability going forwards.

Jet Fuel in 2026

Entering 2026, the global aviation industry had enjoyed relative fuel price stability for much of the preceding 18 months, with prices staying between $80 and $95 per barrel,[4] a beneficial turnaround from the damaging price fluctuations following the end of the COVID-19 pandemic and Russia’s invasion of Ukraine. Instability in the Strait of Hormuz led to the doubling of prices to over $180 per barrel[5] by April 2026—driven in part by fears that jet fuel shortages from failing supply chains could become a defining feature of the 2026 fuel market. A statement on 16 April 2026 from the International Energy Agency (IEA) that Europe had “maybe six weeks of jet fuel left,”[6] together with IATA’s warning that shortage-related cancellations in Europe could occur by the end of May,[7] triggered further price shocks and more increases.

Fortunately, concerns of increasing competition for dwindling stocks of jet fuel appeared to have been more sensational than rational, aided by governments in Europe and around the world looking to alternative means and adapting to the new reality. The coordinated decision by the IEA’s members to release over 400 million barrels of oil,[8] the largest such release in the organisation’s history, did not create a long-term replacement for the supply lost from the Middle East, but it allowed Europe, the US and Asia to adapt. European refiners increased jet fuel’s share of production, reaching record yields,[9] while American production hit and exceeded two million barrels per day for the first time,[10] resulting in record exports from the US to Europe and Asia. Even Middle Eastern producers such as Saudi Arabia diverted fuel exports to ports unaffected by the regional instability, with Saudi exports to Europe eclipsing pre-conflict levels by early June. These adjustments did carry higher costs, which are still evident today, with fuel prices remaining above $150 per barrel; however, the market did not experience the fuel shortages that many feared and some predicted.

Fuel Hedging

Many airlines have typically relied on fuel hedging to manage fuel-cost volatility, with European airlines having the highest hedging ratio globally. Before this spring, 70% of European airlines’ fuel needs for the year were hedged.[11] Fuel-hedging policies were adopted across both low-cost and legacy European carriers, meaning that significant amounts of their fuel consumption were covered by hedging contracts, and the evidence suggests European consumers avoided large-scale price increases in 2026 arising from supply constraints.[12]

North American carriers, unlike their European counterparts, have historically taken the opposite stance,[13] with the majority of North American (especially US-based) carriers having no hedging contracts in place.[14] Although North American airlines have posted strong profitability records in recent years,[15] their sensitivity to the dramatic rise in aviation fuel prices has impacted prices and profitability. Not only have US consumers faced a 25% increase in average ticket prices, reducing demand across the market, but multiple legacy operators suspended routes citing the increasing cost of aviation fuel as the direct reason for the suspensions.[16] Though not the only factor, the rise in fuel costs also was reported to have added to the pressures facing Spirit Airlines before it entered bankruptcy protection.[17] Whilst questions have been asked about the impact of the no-hedging strategy, there is little evidence that North American carriers will begin to follow their European partners or competitors into readopting large-scale fuel hedging.

SAFs

In addition to fuel hedging, Sustainable Aviation Fuel (SAF) was mooted as a strategic alternative for airlines mitigating fuel price shocks. The argument in favour of SAF being that, if the global oil and fuel market continues to maintain its instability, airlines may look towards alternatives like SAF, with its breadth of feedstocks and dispersed distribution potential, to lessen the impact of fossil fuel-based price shocks in the future.

This thesis misses the underlying fundamental issues that make SAF an unviable replacement in the short term. Even with the shocks to the aviation fuel market production, refining and supply capacities for SAF have remained consistently low. In 2025, 0.6% of the global jet fuel consumption consisted of SAF, according to the IATA,[18] which is expected to increase to 0.8% this year.[19] However, in recent months, airlines have shown renewed interest in SAF and have approached SAF producers with a view to securing more supply.[20]

SAF production, elements of which can be localised, also typically relies on high energy use for conversion of feedstocks into usable fuels and currently relies on global distribution networks to move stock from lower cost areas to areas of higher demand—both areas impacted by geopolitical instability.

Despite perception that higher, or at least unstable, jet fuel prices might spike demand for SAF, the significant delta between SAF prices and jet fuel prices remained, even if on a reduced basis—SAF prices have remained consistently high, with SAF averaging around $2,750 per metric ton or $375 per barrel,[21] which remains vastly higher than the approximately $150 per barrel found on the global aviation jet fuel market.

Widespread use of SAF in the aviation industry still requires large-scale investment to drastically increase the supply of SAF and, in turn, reduce the cost per barrel. But the sudden increases in the cost of jet fuel, and concerns about supply, will have caused the aviation market to notice that increasing investment in SAFs may provide a further offset to any future shocks.

Insurances

Some of the immediate impacts of the unrest in the Strait of Hormuz are discussed in detail in Ben El-Gamal’s discussion with Glen Brighton also in this newsletter.[22]

Increased war-risk insurance premiums have added a further strain on top of increased operating costs for airlines operating in the Middle East. Premiums have already risen between 50% and 500%[23] placing further restraints on operators based in or operating out of the Middle East.

In response, airlines have suspended or reduced routes to the Middle East where, for example, Dubai International Airport, a key transit-hub for European to East Asia routes, has seen a year-on-year fall of over 30%[24] in passenger traffic, falling outside of the top five busiest international airports in the world[25] after over a decade at the top.[26] Consolidation of some routes, and (a potentially temporary) exit by some carriers, will have softened some of the impact on profitability.

Lessor and Financier Perspective

Aircraft lessors face a different risk picture, being less immediately exposed. In the short term, the impact on lessors and financiers appears to have been limited, although aircraft lessors, including ACMI providers, may see an uptick in rent-relief, deferral requests or reduction in demand from airlines. Financiers may also need to consider requests for covenant waivers or amendments and, in more stressed cases, consensual restructurings where higher operating costs place sustained pressure on airline liquidity.

In other times, thoughts might have turned to whether there would be increased retirements of less fuel-efficient aircraft, in favour of aircraft that can better weather fuel-price shocks but heavy demand—including a reasonably quick return to flying by Middle Eastern carriers and still largely outpacing manufacturers’ supply capacity—has not seen wide-ranging retirements like those seen during the COVID-19 pandemic.

Other lessors see opportunities, potentially for economically beneficial sale-and-leaseback transactions of airline‑owned aircraft, for airlines seeking to replenish cash reserves or pursue further growth while prioritising cash and liquidity, which may have been depleted following profit declines this year.[27]

As a result, the primary focus of lessors and financiers is likely to continue to lie on the long-term consequences, rather than on the short-term impact, and on balancing growth opportunities while managing existing fleets.

Conclusion

In the short term, fuel price pressures, insurance costs and consumer appetite for Gulf-based (or routed) travel will remain key factors shaping airline and, to some extent, lessor and financier performance. Despite some anecdotal upticks in interest in production, SAF was always unlikely to provide a meaningful short-term response, but greater investment in a broader range of feedstocks and production locations may offer longer-term diversification from fossil fuel supply and price shocks. The question remains as to whether the geopolitical events that have raised the issues highlighted in the article are a one-off event or if these pressures are here for a while yet.

*Trainee Solicitor Emilia Koivisto made significant contributions to this article.

[1] As stated in the IATA global outlook of air transport (June 2026): https://www.iata.org/en/publications/economics/reports/global-outlook-for-air-transport-june-2026/

[10] US Energy Information Administration press release (8 June 2026): https://www.eia.gov/todayinenergy/detail.php?id=67764

[22] INSERT LINK TO OTHER ARTICLE.

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