Oil/Fuel Prices and Aircraft Lease Rates & Values
Is There a Correlation?
Context
The Runway team has been present at various aviation industry events and one subject that comes up regularly in conversation is worth a deeper diveβespecially for those experiencing oil and fuel price hikes for the first time. It relates to the unrest in the Middle East, the closure of the Strait of Hormuz, and the general uncertainties around oil supply.
Following the US and Israeli strikes on Iran in late February 2026, the Strait of Hormuz has been effectively closed. Shipping traffic through the strait fell to roughly 5% of pre-war levels, with around 2,000 vessels and 23,000 seafarers stranded in the Gulf. Brent crude surged above $120 per barrel in late Aprilβup nearly 100% year-on-yearβbefore retreating sharply to the low $100s on growing expectations of a diplomatic resolution. The US has sent Iran a one-page memorandum of understanding through Pakistani intermediaries, proposing a formal end to hostilities. Under the proposed framework, Iran would lift restrictions on Hormuz transit while the US would lift its naval blockade on Iranian ports. President Trump paused the US Navyβs βProject Freedomβ escort operation, citing βgreat progressβ toward a deal, though he has cautioned that agreement is not yet final and has threatened renewed strikes if Iran declines. Iran has confirmed it is reviewing the proposal. The International Energy Agency has described the crisis as the largest oil supply disruption in the history of the global market.
The Question
βIs there a correlation between oil/fuel price and aircraft lease rates and values? Can we expect to see lower lease rates and values as a result of increasing costs?β
Short Answer
Values and lease rates do not follow a strictly direct cause-and-effect relationship with fuel. High fuel costs do make less efficient aircraft less desirable, but ultimately the market is driven by aircraft supply and demand. The two aspects need to be considered together. The current crisis is the most significant test of this thesis in decades.
Historical Precedents
Recession-linked drops (2001, 2008, 2020). The major value and lease rate drops in 2001, 2008, and 2020 were recession-linked, as passenger demand plummeted. Recessions normally trigger a fuel price drop as well, since manufacturing output and flight demand both fall.
Fuel-triggered drop (2011). There was a fuel-triggered drop in 2011, when the market reached a prolonged high-fuel-price plateau. Demand eventually adjusted, and a slow recovery began. This period also correlates with a rise in retirements, as large numbers of older aircraft types permanently exited service.
The 2026 Hormuz closure. This crisis is different from all prior examples. It is not recession-driven (at least not initially)βit is a supply shock of historic proportions. Approximately 20% of the worldβs seaborne oil trade and 25β30% of global jet fuel supply flowed through the Strait of Hormuz. That supply has been almost entirely cut off. The World Bank projects energy prices will surge 24% in 2026 to their highest level since the 2022 Ukraine invasion, with the initial disruption removing approximately 10 million barrels per day from global supply. The Dallas Federal Reserve estimates that a single-quarter closure could raise WTI to $98/barrel and lower global GDP growth by an annualized 2.9 percentage points. A three-quarter closure could reduce full-year global GDP growth by 1.3 percentage points.
The Supply/Demand Framework
To understand the factors at play, we need to look at the overall supply/demand balance of aircraft at any given time.
Aircraft surplus: If there is a glut of aircraft and values are already weak, a fuel shock amplifies the impact.
Aircraft shortage: Provided passengers continue to demand capacity, the impact is linked solely to fare price elasticity. Premium routes hold up, while weaker routes become less profitable and are likely to be reduced. This could lead to oversupply, but airlines largely re-route aircraft to more profitable routes instead.
What the Current Crisis Tells Us About Supply and Demand
The 2026 crisis provides a real-time stress test of the supply/demand framework. The picture is nuanced and varies significantly by region.
The jet fuel dimension. Jet fuel in North America has spiked roughly 95% since the war began. The disruption is a βdouble whammyβ: both finished jet fuel exports from Gulf refineries and the crude feedstock for Asian refineries are blocked. China has banned jet fuel exports and South Korea has cut production, both because of insufficient crude supply. Jet fuel shortages are now materializing in Southeast Asia and parts of Europe, with analysts warning California may be next. IATA Director General Willie Walsh has warned that stabilizing fuel supply and pricing is βcrucialβ as airline resilience is being tested. This is no longer just a cost issueβit is a physical availability issue.
Airline response. Airlines are reacting exactly as this framework suggests. Spirit Airlines permanently ceased operations in early May, widely attributed to the jet fuel crisis. Lufthansa has cut 20,000 flights through the autumn and accelerated the shutdown of its CityLine feeder airline, retiring 27 older, less fuel-efficient aircraft. United has cut its planned schedule by approximately 5% over the next six months. Delta has eliminated food and beverage service on short-haul flights under 350 miles. Across the US, China, Japan, Australia, and much of Europe, airlines have collectively cut 9.3 million seats for June through September, according to Cirium. In the Middle East, Qatar Airways alone slashed two million seats. These are route rationalizations and capacity adjustments, not (yet) panic-driven groundingsβbut they are intensifying.
Regional asymmetry. The impact is highly uneven. The US is relatively insulated as a major domestic energy producer; US refineries are running at high capacity, and exports have surged to record highs above 6 million barrels per day. Europe is far more exposed, importing roughly a third of its jet fuel from the Middle East flow that is now effectively zero. Asia is bearing the heaviest burden: approximately 84% of crude and 83% of LNG flowing through the Strait of Hormuz was destined for Asian markets, with China, India, Japan, and South Korea accounting for nearly 70% of those crude flows. This regional asymmetry means the impact on aircraft values and lease rates may differ sharplyβAsian carriers and widebody long-haul assets face the greatest pressure, while US domestic narrowbody operations are better cushioned.
Pipeline bypass limitations. One might assume that Saudi Arabiaβs East-West pipeline and the UAEβs ADCOP pipeline could partially offset the closure, providing up to 2β3 million barrels per day of alternative capacity. However, the war has demonstrated the vulnerability of these alternatives. Iran attacked the Saudi East-West pipeline in April, cutting throughput by roughly 700,000 barrels per day, and the UAEβs Fujairah export terminal was also struck by Iranian drones. The assumption that alternative routes provide a meaningful buffer is now weaker than expected.
Scenario Framework: Short vs. Prolonged Disruption
Scenario A β Short disruption (one quarter): A USβIran deal is reached and the strait reopens by mid-2026. This scenario has become more plausible following the May MOU proposal and pause in military operations. Oil prices ease back toward $90β100/barrel by Q3. Jet fuel supply chains normalize over the summer, though analysts caution that even with an agreement, meaningful relief in fuel supply and pricing could take weeks to months. Airlines reinstate cut capacity. Impact on aircraft values/rates: minimal to modest. The existing aircraft shortage absorbs the shock. Older types that were grounded for fuel reasons return to service. Lease rates remain elevated due to structural supply constraints.
Scenario B β Prolonged disruption (two to three quarters): Strait remains closed or partially restricted into late 2026. Oil sustains above $100β115/barrel. European jet fuel shortages materialize and force significant summer schedule cuts. Asian carriers face acute fuel sourcing challenges. Impact on aircraft values/rates: moderate and bifurcated. Fuel-efficient new-generation aircraft (A320neo, 737 MAX, A350, 787) see lease rate premiums widen. Older, less efficient types face accelerated retirementsβespecially if airlines are cutting schedules and have surplus capacity. If the crisis tips the global economy into recession, passenger demand could fall, unwinding the aircraft shortage faster than expected. This is the scenario where fuel becomes a genuine determinant of values and rates.
Scenario C β Structural reshaping: The crisis permanently alters energy supply routes and airline network planning. Middle Eastern hub carriers lose traffic as passengers avoid the region. European airlines permanently shift long-haul capacity toward transatlantic and intra-European routes. Asian carriers accelerate fleet renewals toward maximum fuel efficiency. Impact on aircraft values/rates: significant long-term shifts in which types and regions hold value. Narrowbody values remain supported; older widebodies face sustained pressure.
Then vs Now: How the Fuel Dynamic Has Changed
Before the 2000s, fuel was a stronger determinant. It was cheap, and large fluctuations were more common. The market was US-driven, and consumers were more price-sensitive. When costs went up, it affected car fuel pricing tooβless disposable income meant less flying. Airlines often would not raise fares, knowing it would suppress demand, so they frequently weathered the cost and lost money. They could only adjust fares by so much.
In the modern globalized view, higher pricing will largely not impact high-earning US domestic travelers as significantly. However, it may shift holiday plans towards shorter-distance destinations. This pattern plays out globally and does not necessarily reduce overall travel. For example, the current crisis may shift more UK flights to Europe rather than the Middle East or Asia-Pacific. Demand on intra-European flights might actually increaseβwhich is exactly what we are beginning to see as carriers consolidate around shorter-haul, more fuel-efficient routes.
The Broader Cost Picture
All values and lease rates are, in the first instance, affected by the supply and demand of aircraft. The question then becomes: what will affect that balance?
High interest rates, high consumer pricing, and high fuel all reduce disposable income, which has historically led to less travel. However, consumers still want to travel, and the aftermath of Covid underlined that desire. For airlines, high costsβwhether from maintenance, currency, fuel, or laborβall cause the same problems.
The current environment is layering multiple cost pressures simultaneously: fuel costs have nearly doubled, interest rates remain elevated, and inflation is rising again. The World Bank projects inflation in developing economies will average 5.1% in 2026βa full percentage point higher than expected before the war. The question is whether the structural aircraft shortage is large enough to absorb all of these pressures without lease rates and values weakening.
Current Market Conditions
Today, we are still in a significant aircraft shortage, made worse by the poor reliability and high maintenance costs of new aircraft and engines. Aircraft currently held in storage are largely unserviceable, as they require maintenance or engines. Part-outs remain low. PwCβs 2026 Aviation Finance outlook describes a transition from the 2023β2025 era of extreme constraints toward a more normalizing supply environment yet still characterized by shortagesβespecially in engines and MRO capacity.
Wet leasing has been prevalent over the past three years as carriers have filled gaps. However, that dynamic is shifting. Wet leasing is now on the verge of collapse, which suggests that airlines are finally receiving new supply from OEMs or are reducing their supplementary demand. This means older aircraft may be hitting the market soon, triggering part-out spikes and value/rate drops.
The crisis adds a new dimension to this picture. If European and Asian airlines are cutting schedules and grounding older types specifically because of fuel costs and supply constraints, those aircraft may hit the secondary market sooner and in greater numbers than anticipated. Lufthansaβs accelerated retirement of its CityLine fleet is an early signal. Similarly, ex-Spirit aircraft have softened lease ratesβa development that was not fuel-related but driven by a US LCC shift and oversupply of new, expensive aircraft. These threads are beginning to converge.
The leasing market itself remains structurally strong. The global aircraft leasing market continues to grow, driven by rising acquisition costs that encourage airlines to lease rather than purchase, and by the ongoing fleet renewal cycle toward fuel-efficient narrowbodies. KPMGβs Aviation Leaders Report 2026 notes that the historic close link between interest rates and lease rate factors was disrupted in 2025 as aircraft shortages kept lease rates strong despite falling spreads. The key question is whether the fuel crisis will be the catalyst that finally breaks this dynamic.
Conclusion
There is no direct correlation between fuel price and aircraft values or lease rates, but fuel is a meaningful cost influencer that places additional pressure on airlines and consumers. The 2026 Strait of Hormuz crisis is the most severe test of this thesis in the modern era.
The core argument holds: supply and demand of aircraft remain the primary driver. Provided there is a sufficient cushionβconsumer debt appetite, favorable currency dynamics, manageable interest rates, low OEM output, high new-aircraft maintenance costsβthe impact of a fuel shock on values and rates can be contained. That cushion still exists today, but it is thinner than it was six months ago and is being eroded from multiple directions simultaneously.
The most likely outcome, if the disruption lasts one to two quarters, is a widening premium for fuel-efficient new-generation types and accelerated pressure on older, less efficient aircraftβparticularly widebodies serving routes through or near the conflict zone. If the crisis extends into a prolonged global economic downturn, all bets are off: the aircraft shortage could unwind faster than expected, and values and rates across the board would come under pressure.
The situation is evolving rapidly. The USβIran MOU framework currently under negotiation could, if accepted, lead to a gradual mutual de-escalation in the strait. However, even optimistic scenarios suggest weeks to months before fuel supply chains normalize. The critical variables to watch are: whether Iran accepts the proposed framework, the pace and conditions of any strait reopening, the severity of European and Asian jet fuel shortages through the summer, whether the crisis tips into a broader recession, and whether passenger demand holds up through the northern hemisphere summer. Each of these will shift the supply/demand balance in aircraft marketsβand with it, values and lease rates.
