Every war has unintended consequences; the war is often fought between two countries over perceived and expected ownership of lands and resources. The main action happens in the country but because the world is connected there will always be some sort of consequence.

If you think back to the war in Syria, the unintended consequence was a mass migration of people towards Europe and beyond. Where do people not directly involved in the war go?

In the war of Iran and the US, the intended consequence was the closing of the Straits of Hormuz. Roughly 1/5 of the worl’s oil and gas moves through the Straits. About 1/3 of the fertilizer for the world’s crops goes through the Strait and it is planting season around the world, there are and will be shortages.

For the oil and gas, it goes to refineries to be changed to gasoline for the car, diesel for trucks and jet fuel for planes. The unintended consequences is Europe is running out of jet fuel and prices are going upwards.

In an article by Eric Reguly of the Globe and Mail, airlines everywhere are raising ticket prices, adding surcharges and trimming flight schedules as the Strait of Hormuz is effectively closed.

Jet fuel prices have essentially doubled in price they were before the started, while gasoline prices have gone up 55%.

European jet fuel market relies heavily on supplies from the Persian Gulf and according to the International Energy Agency, Europe has essentially 6 weeks or so of jet fuel on hand, then shortages will result.

ACI Europe, the trade association of European airports delivered a similar warning. In April 10, the association warned that systematic aviation fuel shortages will become a reality within the next 3 weeks, unless Hormuz shipping is unimpeded as it was before the war.

SG Commodities noted that prices can be managed, scarcity cannot. The distinction is critical, paying more for energy is manageable, not having it is essential.

Europe faces a crisis because domestic refinery production covers only 1.1 million barrels a day of jet fuel, well short of the 1.6 million needed. The difference has to be imported from the Middle East.

If Europe manages to replace 75% of the shortfalls from the US, severe fuel shortages would not arrive until August. The most likely scenario is 50% replacement.

Airlines are managing the real and expected shortages by raising ticket prices and removing capacity, particularly on short-haul and low-demand flights. United Airlines, chief commercial officer, Andrew Nocella noted they have raised prices 5 times since the war stated and reduced capacity by 5%.

Germany’s Lufthansa, Europe’s 2nd largest airline, said it will cancel 20,000 flights over the next 6 months to save 40,000 tons of fuel. Its CityLine subsidiary has grounded 27 of its airlines.

Fortunately, in Europe the alternative to flying is to take the train and Europe has a network of high speed rail.

Germany’s TUI Group, Europe’s largest tour operator and owner of a fleet of aircraft has suspended its revenue guidance and cut its underlying profit forecast.

Linking to dividend paying stocks, whatever governments do on the international scene, it will have unintended consequences and that will put pressure on various governments and their relations to one another. Governments often talked about the partnership, but every partner can have and will have different pressures on it.

There are more questions than answers, till the next time – to raising questions.