Eleanor Budds of S&P Global has told a press briefing at the IATA congress in Rio de Janeiro that the closure of sections of the Strait of Hormuz led to daily losses in crude production and refining capacity in the Middle East Gulf. Storage facilities reached limits and infrastructure damage from attacks added delays to restarts.
Ms Budds explained that production ramp-up requires around two months for crude and five months to reach prior levels while tanker movements and refining add further weeks. Insurance costs for transport rose sharply and risk premiums influenced market prices.
Global growth forecasts fell from threepc to 2.5pc with oil prices trading in a range that affects household budgets and economic activity. Fertiliser export restrictions from Russia and China compounded pressures on food production amid weather events.
Airlines and other sectors faced higher jet fuel costs passed through to fares while demand showed resilience in some regions. Parts of Asia reported measures such as traffic reductions in response to fuel access limits.
Willie Walsh shared: “The longer that goes on the more we lose.” “It takes probably two months for the crude production to ramp up five months to get back to where it was before.” “Every single day is more loss from the market.”
What we’ve seen in the Gulf is obviously a very significant impact in April, in March and in April. But the situation for the carriers there is improving somewhat. The year to the end of April, the traffic is down 24pc versus the same four months last year. And we’re projecting for the year it will be down 11.4pc, we’re actually saying that it will continue to improve from now through to the end of the year.
I think they’ve done everything they possibly can to operate as many flights as is possible in the environment they’re operating in. Their profitability is going to be impacted by the disruption to their schedules but also obviously they’re facing higher oil prices as well and the combination of the disruption and higher oil prices leads to the losses that we’ve projected around 4.3 billion US dollars.
Personally, you look at the Gulf in global terms, it’s about 9.5pc of total capacity. It’s about 14 and a halfpc of international capacity. Given the situation that we have with aircraft shortages, there’s no way that that capacity can be replaced by airlines in Europe or in Asia. Now, some of it can be replaced and we’ve seen that, but it’s very marginal.
So my strong view is that this is not a structural change that we’re seeing, that the Gulf carriers will regain their position once we see stability in the region and that the model of the Gulf hubs I don’t think is undermined or damaged by the short-term impact that we’ve seen. Obviously, we have to see an end to the military action in the region and need to see some stability there.
But the one thing I would say from feedback that we’ve received from airlines and from customers is that the people who were directly impacted when the war started were very strongly appreciative of the efforts made by the carriers in the region and by the governments in the region to look after them and I think people will remember that, I don’t see any structural change to the industry as a result of what’s going on. I think things will return pretty quickly to the way they were in February of this year once we see more stability in the region.
