- The Middle East crisis is squeezing airlines’ jet-fuel supplies. Unlike previous oil crises, the main bottleneck lies in refining capacity and product logistics. The Strait of Hormuz accounts for roughly 25% of global seaborne jet-fuel trade, making it a critical artery for aviation markets. As regional refinery operations have been disrupted, jet-fuel prices have doubled since the start of the conflict, while refining crack spreads have moved above USD 100/bbl. Fuel is the largest cost line (30–35%), meaning price shocks translate almost immediately into higher fares, capacity cuts or margin erosion.
- Europe is among the most structurally exposed regions. Europe produces only around 50% of its kerosene needs domestically, with the remainder met through imports. Gulf producers account for approximately 70% of imported volumes, affecting markets such as the UK, Germany, France and Italy, all of which run persistent deficits. Middle East kerosene flows to Northwest Europe fell -90% m/m in March, while April flows were effectively nil. Although US shipments surged +782% m/m, total combined inflows from the US and Middle East were still down -82% m/m in April, suggesting tightening physical availability into late spring and summer. More worryingly, even if Hormuz reopens soon, a full refinery ramp-up would likely take 3–6 months.
- Airlines are reacting through fare increases (+5-15% for international routes) and tighter capacity management (2-5% cuts in Europe). Across markets, carriers are attempting to preserve margins via pricing power. Beyond the fare hikes, specific fuel surcharges now range from USD20-60 on short/medium-haul routes and USD80–150 on long-haul tickets. If conditions worsen, further fare increases of 10–15% are likely. In Europe, announced capacity reductions remain selective, concentrated on lower-yield short-haul routes and secondary airports. Low-cost carriers are especially vulnerable because of thin margins, short-haul concentration and strong competition from high-speed rail alternatives.
- Will it be the summer of staycations? Some substitution benefits are emerging in Southern Europe, but the upside is limited. Equity markets have repriced airlines sharply while rewarding Western Mediterranean hospitality firms, with listed hotel stocks up +36% since the onset of the conflict. Booking trackers point to demand gains of +32% y/y for Spain and around +20% for Italy, Greece and Portugal. However, weakening sentiment in the US and Eurozone means many households may reduce total leisure spending rather than fully replace international trips with long domestic holidays.
- Meanwhile, tourism in the Middle East faces a sharp reversal after strong post-pandemic growth. Before the conflict, international arrivals were expected to increase by +13% y/y in 2026, after +51% in 2025 versus 2019, thanks to visa reforms and heavy tourism investment. If hostilities persist for another month, arrivals could instead decline by -35-40% y/y, implying approximately USD70-75bn in lost tourism receipts. Smaller tourism-dependent economies – i.e. Lebanon (where tourism accounts for 9.1% of GDP), Bahrain (6.2%), the UAE (6.2%) and Jordan (5.9%) – are most exposed to sudden declines in arrivals, foreign-exchange receipts and hospitality demand. Countries with weaker external balances may face stronger pressure on reserves and exchange rates. Beyond the Middle East, island tourism destinations where aviation is the primary gateway (Seychelles, Maldives and Mauritius) will also feel the pinch from disrupted connectivity through Middle Eastern air hubs.