The following provides a high-level overview of the potential impact of and challenges posed by the US/Iran conflict to airlines, lessors and financiers. The observations contained herein are general in nature.
Background Summary
As a result of the US/Iran conflict commencing in February 2026, Iran has heavily restricted commercial shipping in the Strait of Hormuz by means of attacks and military threats to maritime vessels, disrupting a major share of the global supply of oil. The subsequent restriction in the global oil supply have had a significant adverse impact on the aviation industry.
1. Jet Fuel Availability
About twenty percent of the world's oil supply1 cannot currently pass through the Strait of Hormuz due to Iranian restrictions. The availability of jet fuel is now becoming increasingly problematic. Europe and Asia source the bulk of their jet fuel from the Middle East and, given the relatively short storage life of jet fuel, airports typically take delivery on a rolling basis, which creates acute vulnerability to supply disruption. Some Asian countries, such as China, Thailand and South Korea have introduced restrictions or bans on the export of refined oil products3. In certain import-dependent markets like Vietnam cuts to certain domestic routes by local airlines have already been attributed to a lack of jet fuel availability. Pakistan has struggled to source an alternative to jet fuel from the Gulf and airlines flying to Pakistan are being advised to carry surplus fuel from abroad for their return leg (i.e. "tankering"4). If airlines need to tanker when flying to Asia, route economics will come under increasing strain, if the practice is even practicable on a given route. The European situation is further compounded by the Ukraine war, as since 2022, many European countries shifted from Russian to Middle Eastern oil, severely exposing them to this present disruption5. The UK is particularly exposed as over half of its jet fuel comes from the Middle East, with a quarter sourced from Kuwait6. European airlines face a realistic prospect of flight cancellations during the peak summer period as a result of airports rationing jet fuel supplies. Lost revenues, combined with passenger compensation obligations will further compound the financial pressures on operators.
2. Jet Fuel Price
Jet fuel has more than doubled in price since the outbreak of the US/Iran conflict7. Given that jet fuel is typically an airline's second largest operating expense (after labour costs)8, such a price increase has considerable implications. One such implication is increased airfares, which are already being observed across the market. In some cases, prices have increased as much as 79%9. Increased airfares are likely to suppress demand. Leisure travellers were largely responsible for the aviation industry's post-pandemic recovery10, but they are more price sensitive than business travellers. Low-cost carriers, such as Pegasus and Jet2, face the most acute exposure11, as do airlines operating short and medium haul routes in Europe and Asia12.
The impact of increased jet fuel prices is not universal, as some airlines have fuel hedges in place. For example, EasyJet, Air France and the IAG group hedge jet fuel to protect margins13, with Lufthansa notably hedging 80% of its projected annual consumption14. The major US carriers (i.e. United, American and Delta), have no known hedges in place, which means that they will absorb significant operating cost increases15. If jet fuel prices remain highly elevated for an extended period, more airlines may choose to adopt long-term fuel hedging arrangements to minimise their exposure to fuel-price fluctuations.
3. Operational impacts on Lessors, Lessees and Insurers
Gulf Transit Demand
Gulf transit demand via the Middle East has been impacted since the beginning of the US/Iran conflict. Airlines have adapted their operations through longer routings and revised scheduling, which have contributed to increased flight times, fuel consumption, and overall operating costs.
Airlines operating through alternate hubs that offer comparable connectivity without Middle Eastern airspace exposure, may find themselves well-placed to accommodate any potential shift in demand. This includes European carriers that had previously abandoned certain long-haul Asian routes, owing to the operational challenges of circumventing Russian airspace under sanctions regimes combined with fierce competition from the Gulf carriers. British Airways and the Lufthansa Group have added flights to Singapore and Bangkok, whilst Air France-KLM have deployed larger aircraft to Tokyo, Shanghai and Mumbai16. European carriers seeking to capitalise on a drop in Gulf transit demand are constrained by aircraft availability, given ultra-long-haul-capable aircraft, particularly next-generation aircraft such as Airbus A350s or Boeing 787s, are in limited supply with long delivery windows.
Lessor Impacts
Aircraft lessors face a bifurcated risk picture: possible short-term relief requests from airlines, and medium-to-long-term pressure on fleet values and order pipelines. Whilst some Middle Eastern carriers have requested rental deferrals or reductions owing to disruption from the conflict, such requests have carried limited lessor risk to date given typical "hell or high water" provisions included in leases, and given the balance sheets, credit profiles and shareholders concerned. The more significant concern lies in prolonged conflict, as a sustained fuel price shock increases the probability of lease defaults from low-cost carriers or financially weaker lessees and operators without fuel hedging protection17.
The jet fuel shock is accelerating demand for new-generation, fuel-efficient aircraft. This risks creating a two-tier recovery for lessors. Lessors with majority new-generation fleets and orderbooks are well positioned, whilst lessors carrying older assets and facing long delivery queues for next-generation aircraft risk facing capital strain and a competitive disadvantage.
Insurance Impacts
Airlines which have continued to operate to the Middle East are paying increased war-risk premiums, thereby increasing operating costs on such routes18. Specialist reinsurers have also tightened war-risk exclusions to limit liability exposure. Overall, the insurance impact of the conflict has been more measured, with S&P reporting that the war poses a limited threat to insurers19. Some impacted carriers have repositioned some of their fleet to Europe (e.g. Teruel in Spain, Geneva and London). As much of the insurance risk stems from the concern of a concentration of aircraft at Middle Eastern hub airports and the risk of a single incident generating multiple claims, the repositioning of aircraft outside the Gulf has helped mitigate this risk. In addition, given that several airlines, like British Airways, Lufthansa and American Airlines have reduced or suspended routes to the Middle East, there have, to date, been no reports of insurers issuing notices of cancellation for their aircraft insurance policies20 for Middle Eastern operations.
4. Aircraft Financing
The increased jet fuel and insurance costs materially impact the economics of aviation, especially on routes impacted by airspace closures or potential jet fuel rationing. Amidst the volatility of global markets, credit committees may be more cautious with financing aircraft acquisitions until greater clarity emerges as to the longer-term consequences of the conflict. This could lead to challenges for some airlines seeking to renew their fleets. Airlines that have not yet secured financing for next-generation aircraft face a compounding disadvantage, continuing to operate older, less fuel-efficient fleets at a structural cost disadvantage relative to competitors who took delivery of new-generation types before the crisis. As the US/Iran conflict continues to evolve, parties would be well advised to carefully review the terms of their financing engagements and commitments to ensure alignment on force majeure, material adverse effect and similar terms.
1 Oil in the new age of volatility | FT
2 Airlines in crisis mode as Iran war hits jet fuel supplies | FT
3 China's fuel export ban to further tighten Asia supply | Reuters
4 Asian airlines trim schedules and carry extra fuel as supplies tighten | Reuters
5 Europe's airports thirst for jet fuel | POLITICO
6 UK is Europe's 'most vulnerable' market to jet fuel disruption, says Ryanair chief | FT
7 Airline hedging strategies fall short as jet fuel price surges | Reuters
8 Unveiling the biggest airline costs | IATA
9 Soaring Airfares Are About to Ruin Your Summer Vacation Plans | Bloomberg
10 The Airline Industry Takes Flight: A Post-Pandemic Boom | Inter Airport Europe
11 Middle East War Could Affect Global Airline Ratings If Fuel Prices Remain Higher For Longer | S&P Global Ratings
12 European jet fuel supplies under threat as Iran war halts flows | FT
13 How airlines have hedged against fuel price increases | Reuters
14 Lufthansa Warns of Potential Fuel Shortage on Prolonged Iran War | Bloomberg
15 US airlines face $11bn fuel hit from Iran conflict | FT
16 British Airways, Lufthansa add Asia flights amid high demand | The Business Times
17 Aircraft Lessors: ME Conflict & Fuel Shock | CreditSights
18 Insurers give Emirates 'outrageously' cheap war insurance cover | FT
19 Iran war poses limited threat to insurers: S&P News | Airfinance Global
20 Insurance gaps leave airlines exposed as Iran conflict widens | Reuters
White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.
This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.
© 2026 White & Case LLP
