As the conflict in Iran escalates, the aviation industry faces a severe crisis, with jet fuel prices soaring to unprecedented levels. The surge, which has seen costs nearly double since the onset of hostilities in late February, poses a significant challenge for airlines globally. With inventories dwindling and operational costs skyrocketing, experts are urging the industry to explore cleaner fuel alternatives, particularly sustainable aviation fuel (SAF).
Jet Fuel Costs Reach Record Highs
The ongoing war has dramatically impacted flight operations, grounding tens of thousands of flights and driving jet fuel prices to an average of $181 per barrel—twice what it was before the conflict began. With Europe’s jet fuel reserves falling 50%, Goldman Sachs has raised alarms that supplies could dip below critical thresholds as early as June, putting the UK in a precarious position.
Airlines are grappling with the financial fallout of these rising costs. Lufthansa has announced the cancellation of 20,000 flights through October, while American Airlines anticipates an additional $4 billion in fuel expenses this year. Meanwhile, Spirit Airlines has collapsed after failing to secure a government bailout, highlighting the crisis’s severity.
Renewed Interest in Sustainable Aviation Fuel
In light of the jet fuel crisis, the aviation sector is reigniting discussions around sustainable alternatives. Sustainable aviation fuel, primarily derived from used cooking oil, agricultural waste, and captured carbon, currently represents a mere 0.7% of global kerosene consumption. The International Air Transport Association reports that only two million tonnes of SAF were produced last year, a stark contrast to the estimated requirement of 250 to 500 million tonnes annually by 2050 to meet climate goals.
However, the production of SAF faces significant hurdles. Frédérique Rigal, co-author of a recent study on aviation decarbonisation, notes the limitations in the supply of waste cooking oil, estimating a maximum availability of around 20 million tonnes. Furthermore, the next generation of SAF, which could be produced from woody waste and agricultural residues, is not yet commercially viable in significant quantities.
The lack of commitment from airlines to purchase SAF in advance remains a critical barrier. Rigal emphasises that airlines need to provide clearer offtake agreements to facilitate the scaling up of SAF production.
Short-Term Solutions and Long-Term Challenges
In the immediate term, airlines have turned to traditional sources to alleviate the fuel shortage. US refiners have ramped up production, with jet fuel exports to Europe surging over 400% in April compared to February. The European Commission has initiated a programme called AccelerateEU, aiming to optimise jet fuel distribution among EU member states. However, analysts warn that supply chain disruptions could persist for months, even if peace is restored.
Another promising alternative is electro-SAF, which utilises green electricity to create synthetic kerosene. Although the potential for production is virtually limitless, the technology remains in its infancy, requiring substantial investment and development.
The regulatory landscape is evolving, with the EU and UK mandating increasing SAF blending ratios. However, airlines are lobbying for these targets to be postponed, citing insufficient supply—a claim contested by producers, who assert that numerous e-SAF projects are advancing towards final investment decisions.
The Shift in Energy Security Conversations
The current crisis has shifted the narrative surrounding sustainable aviation fuel from purely environmental concerns to issues of energy security and economic stability. Mahesh Roy, programme director for SAF at the Green Finance Institute, highlights how the conflict has reframed SAF discussions, intertwining them with national sovereignty and energy independence.
For airlines that secured SAF supply agreements before the crisis, the benefits are becoming apparent. With supply chains unaffected by Middle Eastern instability, these carriers are in a stronger position as fuel prices soar. Roy notes that the financial pressures on airlines to accelerate the adoption of SAF are intensifying, especially as compliance costs under emerging environmental policies are projected to quadruple to $48 billion by 2035.
European carriers are particularly vulnerable, facing a projected 38% increase in operating costs due to environmental regulations. This could force airlines to pass costs onto consumers, reduce capacity, or reroute long-haul flights, potentially increasing overall emissions.
Why it Matters
The escalating conflict in Iran has underscored the urgent need for the aviation industry to transition to sustainable fuel sources. As jet fuel prices soar and supply chains falter, the pressures on airlines are mounting. The exploration of SAF and other alternatives not only addresses environmental concerns but also enhances energy security and economic resilience. The decisions made today will shape the future of air travel, compelling stakeholders to act swiftly in adopting innovative solutions to avert a deeper crisis.
