Airlines are canceling flights. Not because of weather. Not because of labor disputes. Because they can’t get enough fuel — or can’t afford what’s available.
A convergence of geopolitical turmoil, refinery constraints, and surging demand has pushed jet fuel prices to levels that are forcing carriers worldwide to make painful operational decisions. Routes are being trimmed. Frequencies are being cut. And passengers are absorbing the cost in the form of higher fares and fewer options, a reality that’s unlikely to reverse anytime soon.
The immediate catalyst is the escalating confrontation between the United States and Iran, which has sent oil markets into a state of sustained anxiety. As Business Insider reported, multiple airlines have begun canceling flights in response to rising jet fuel prices and emerging supply shortages linked to the Iran crisis. The Persian Gulf remains one of the world’s most critical chokepoints for crude oil transport, and the mere threat of disruption — let alone actual conflict — is enough to send futures contracts climbing. Jet fuel, which is refined from crude, follows that trajectory with a markup.
But this isn’t just a pricing story. It’s a supply story.
Refining capacity for jet fuel has been tight since the pandemic era, when several refineries shut down permanently or converted to renewable diesel production. The world lost meaningful distillate refining capacity between 2020 and 2023, and that capacity has not been fully replaced. What’s left is running hot. According to the U.S. Energy Information Administration, refinery utilization rates have been hovering near 90% in recent months, leaving little slack to absorb demand shocks.
Now add the Iran variable. Sanctions, saber-rattling, and the specter of military action near the Strait of Hormuz — through which roughly 20% of the world’s oil passes daily — have injected a risk premium into every barrel. Brent crude has climbed past $95 in recent sessions, and jet fuel crack spreads — the margin between crude oil and refined jet fuel — have widened significantly. For airlines operating on razor-thin margins, the math stops working fast.
The operational fallout is already visible. As Business Insider detailed, carriers in Europe, Asia, and the Middle East have been among the first to pull back capacity. Some of these cancellations are framed as schedule adjustments. Others are more blunt: routes that don’t generate enough revenue per seat to cover the new fuel economics are simply being dropped. Low-cost carriers, which depend on high load factors and cheap fuel to make their business models viable, are particularly exposed.
In the United States, major airlines have so far avoided large-scale cancellations, but the pressure is mounting. Delta Air Lines, United Airlines, and American Airlines all hedged portions of their fuel exposure earlier this year, which provides a temporary buffer. But hedging is not a permanent shield — contracts roll off, and replacement hedges are now far more expensive. Southwest Airlines, which famously profited from aggressive fuel hedging in the 2000s, has been more conservative in recent years and faces growing exposure to spot prices.
The ripple effects extend beyond the airlines themselves. Airports that depend on fuel throughput fees are watching volumes decline. Ground handling companies that staff based on flight schedules are adjusting rosters. And the broader tourism economy — hotels, rental cars, restaurants — feels the secondary impact when fewer planes fly and fewer travelers arrive.
There’s a regional dimension too. Airlines serving routes to and from the Middle East face a dual challenge: higher fuel costs and the operational risk of flying near a potential conflict zone. Insurance premiums for aircraft operating in the Persian Gulf region have spiked. Some underwriters are reportedly adding war-risk surcharges that can run into the tens of thousands of dollars per flight. That cost gets passed to passengers or, if the route can’t bear it, the flight gets canceled.
History offers some uncomfortable parallels. During the oil price spike of 2008, when crude briefly touched $147 per barrel, more than two dozen airlines worldwide went bankrupt or ceased operations. The current situation hasn’t reached that severity, but the structural vulnerabilities are arguably worse. Airlines emerged from the pandemic carrying significantly more debt. Many took on billions in government loans and private financing to survive the 2020-2021 collapse in travel demand. Their balance sheets are heavier. Their ability to absorb prolonged fuel shocks is diminished.
And demand isn’t helping moderate the equation. Global air travel demand has been running above 2019 levels for several quarters now, driven by pent-up leisure travel and a recovery in business travel, particularly on transpacific routes. The International Air Transport Association projected earlier this year that 2026 would see a record 4.9 billion passengers globally. That forecast now looks optimistic — not because people don’t want to fly, but because airlines may not be able to economically serve the demand.
Fuel typically represents 25% to 35% of an airline’s operating costs, depending on the carrier and the route. When prices spike, that share can balloon past 40%. At that level, profitability evaporates on all but the most premium routes. Airlines have three levers to pull: raise fares, cut capacity, or burn through cash. Most are pulling all three simultaneously.
Fare increases have already materialized. Average domestic round-trip fares in the U.S. are up roughly 12% year-over-year, according to recent data from Hopper. International fares are up even more, particularly on routes to Europe and Asia where fuel surcharges are being added or increased. The question is how much pricing power airlines actually have. Consumer sentiment has been softening, and there’s a ceiling beyond which travelers simply stop booking.
So what happens next? The trajectory depends almost entirely on the geopolitical situation in the Middle East. A de-escalation with Iran would likely take $10 to $15 off the price of Brent crude within weeks, easing the immediate pressure on jet fuel markets. But even in that scenario, the structural tightness in refining capacity remains. The world needs more jet fuel refining, and building that capacity takes years, not months.
A prolonged crisis or actual military conflict near the Strait of Hormuz would be a different order of magnitude. Oil analysts at Goldman Sachs have modeled scenarios in which a sustained closure of the strait could push Brent above $130. At those levels, the airline industry would face a genuine existential threat — not for the strongest carriers, but certainly for the weakest. Regional airlines in developing markets, low-cost carriers with no hedging programs, and heavily indebted legacy airlines in Europe would all be at risk.
Private equity firms and distressed debt investors are already circling. The pattern is familiar: fuel spikes create forced sellers, and well-capitalized buyers pick up routes, slots, and aircraft at discounted prices. It happened after 2008. It could happen again.
For now, the industry is in a holding pattern — an apt metaphor. Airlines are making week-by-week decisions on capacity, watching oil futures and diplomatic cables with equal intensity. Passengers are paying more and getting less. And the global supply chain for jet fuel, stretched thin and geographically concentrated in all the wrong places, is revealing just how fragile the architecture of modern air travel really is.
None of this was unforeseeable. Industry groups and energy analysts have warned for years that the combination of underinvestment in refining, geopolitical risk in oil-producing regions, and surging post-pandemic demand would eventually produce exactly this scenario. The warnings were noted. Not much was done.
The sky, it turns out, has a price. And right now, that price is going up.
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