U.S. Airlines Absorb Nearly $9 Billion in Extra Fuel Costs as Hormuz Closure Reshapes Supply Routes
Carriers are routing jet fuel through the Panama Canal and lobbying governments for emergency cargoes as the Hormuz disruption enters its sixth month with no resolution in sight.
Southwest Airlines shipped 12.6 million gallons of jet fuel from Houston to Los Angeles via the Panama Canal in late spring, arriving at the end of May (2026-05-31, approximately) — a routing that would have been considered uneconomic under normal conditions. Tom Doxey, Southwest's chief financial officer, described it plainly: "It brought like a week's supply to the West Coast at a time when supply was most constricted ... when it was most at risk." That the carrier judged an around-Central-America voyage worthwhile is a concrete measure of how badly the West Coast supply picture had deteriorated.7,6
The Strait of Hormuz closed on February 28, severing a flow of Middle Eastern crude and refined products that had underpinned global jet fuel supply. ICE Brent crude front-month prices pushed past $100 per barrel after a brief U.S.-Iran diplomatic interlude collapsed, according to oilprice.com reporting, and the U.S. jet fuel market has been tightening since March.6
The cost is now visible in carrier earnings. United Airlines warned investors in mid-July (week of 2026-07-13) that it expects nearly $6 billion in additional fuel expense for full-year 2026 against its pre-crisis forecast. Southwest reported fuel expenses almost $900 million higher in the second quarter than the same period a year earlier, beating earnings consensus but offering little relief on costs. American Airlines posted record quarterly revenue of $16.7 billion — up 16.3% year over year — yet its fuel bill jumped by more than $2.2 billion, or 83%, from a year prior.7,6
The Houston-to-Los Angeles routing via Panama is not a natural trade flow. Gulf Coast jet fuel typically moves by pipeline to East Coast terminals or along coastal tanker routes; sending it around Central America adds distance, cost, and transit time. Southwest's decision to do it anyway reflects the extent of the West Coast supply crunch at the time.7
The Panama Canal has become a more heavily used alternative since February. The Atlantic Council reported on May 21 (2026-05-21) that the Hormuz closure and related maritime disruptions had pushed shipping companies toward longer but safer routes, with waiting times at the Canal lengthening as traffic built up. Ports became more prone to punitive fees on idle cargo and sharp freight rate increases, the Economist reported on May 17 (2026-05-17), with container ships across the Indian subcontinent facing particularly severe congestion.4,3
EIA data released on June 8 (2026-06-08) showed U.S. jet fuel production climbing to record highs in response to elevated prices and the Hormuz supply shock. Europe and Asia — previously large importers of Middle Eastern jet fuel — began competing for alternative supply, and that demand pull from overseas has complicated U.S. carriers' ability to source domestically without bidding against themselves.5
Governments have intervened where airlines cannot. Australian Prime Minister Anthony Albanese announced on May 18 (2026-05-18) that Australia had secured three shipments of jet fuel totalling more than 600,000 barrels — equivalent to around 100 million litres — from China, due to begin arriving from early June, alongside 38,500 tonnes of agricultural urea from Brunei. Three government-negotiated cargoes can bridge a short gap. They do not rebalance a market whose disruption began in February and has yet to show signs of resolution.1
The IEA's response has been the largest coordinated reserve release in the body's history. On March 11, its 32 members agreed to sell 400 million barrels from emergency stocks — equivalent to a third of total strategic reserves — yet crude inventories tracked by Kayrros using satellite data had already fallen 13% to 545 million barrels as of the Economist's May 17 (2026-05-17) reporting.2
The signal traders should be watching in refined products is diesel. One commodities trader told the Economist that some diesel cargoes were trading at $600 per barrel, up from $300 the previous week — a doubling that, if it spreads to jet fuel differentials, would push airline cost forecasts well beyond what carriers have already disclosed. Southwest's Panama Canal shipment was a one-off fix for a one-week supply gap. Whether carriers can sustain current earnings guidance if jet fuel procurement continues to depend on improvised routing is what the next round of guidance revisions will test.2,7