Signs of jet fuel hoarding emerge in Asia on Iran oil shock

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Signs are growing that Asian countries are hoarding jet fuel after the Iran war sent oil prices surging, reflecting growing strain on the aviation industry.

South Korean carriers got notified about refuelling restrictions from some countries and the government is discussing whether to redirect export-bound jet fuel to the local market, the nation’s transport ministry said in a statement to Bloomberg on March 25.

Philippine Airlines’ president said in an interview that the South-east Asian nation may soon resort to fuel rationing. In Vietnam, the aviation agency warned of potential jet fuel shortages from early April and is cutting flights as a result.

Difficulties securing fuel threaten to aggravate the airline industry’s woes as the Iran war rages on and keeps oil prices high. Though countries have largely been able to avoid running out of fuel, Asia is the most vulnerable region for shortages if the Strait of Hormuz stays effectively closed. 

“There are a couple of countries who are now starting to say, ‘Well, we don’t want you to pick up too much fuel when you come.’ And so I think if countries are not thinking about how they manage that, then they’re missing the big picture,” Philippine Airlines president Richard Nuttall said in an interview with Bloomberg News on March 25.

The crisis is rapidly spreading as governments pivot from market-driven exports to preservation.

China and Thailand have both tightened curbs on refined fuel exports to protect their own strategic stocks, while Australia implemented a temporary 20 per cent cut in its minimum stockholding obligations for diesel and petrol amid dwindling imports.

In South Korea, the government is now stepping up contingency planning for a worst-case Middle East scenario, including exploring the possibility of releasing strategic oil reserves in line with the International Energy Agency’s proposal. Finance Minister Koo Yun-cheol said earlier in March the country’s reserves are sufficient for about 208 days. 

Korean Air Lines, the country’s largest flag carrier, said it is closely monitoring the situation. Its budget affiliate, Jin Air, said it has not received any official notice from overseas about refuelling and maintains supply levels that will not immediately disrupt operations. Asiana Airlines was unavailable for comment. 

In the Philippines, President Ferdinand Marcos Jr became the first South-east Asian leader to declare a state of national energy emergency since the conflict began.

He told Bloomberg Television in an interview on March 24 that the country’s carriers have been forced to transport enough fuel for a round trip, and that grounding planes is a “distinct possibility” as Manila continues supply talks with nations such as China and Russia.  

Separately, the country’s transportation chief said in an interview the government can back airlines’ efforts to secure jet fuel, and can help carriers obtain guarantees that oil contracts will be honoured.

“The surge in jet fuel prices alongside disruptions to Mid-East flight routes appear to have also caused inflationary pressures on air travel,” Citigroup analysts led by Mr Anthony Yuen wrote in a note.

“Demand effects could adversely impact travel, posing downside risks to Asia’s more tourism-dependent economies.” BLOOMBERG