Regional airlines learned to fly around the war but the economics need a reality check

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WHAT WE’RE TRACKING TODAY

TODAY: Which routes are worth flying?

Good morning, and happy Monday, everyone. It’s another week, another ceasefire. The US and Iran have reportedly agreed (once again) to cease strikes, following a spate of attacks over the weekend, with the two sides planning to resume talks in Doha tomorrow to resolve their dispute over the Strait of Hormuz. Hostilities reportedly reignited over contradicting interpretations of the MoU signed by both sides earlier this month to secure an interim peace.

The aviation economics story isn't going away. Gulf carriers are flying, rerouting, and rebuilding schedules — but fuel costs, hedge gaps, and a cautious booking window are now the story.

Also this morning: Egypt moves toward a December deadline on a USD 457 mn port expansion that could reshape Mediterranean oil trading, Aramco restores Ras Tanura exports after a four-month halt, and AviLease prices a second dollar bond seven months after its debut.

Back on the West Coast?

Aramco is resuming Ras Tanura operations — and is expected to reduce Arab Light crude prices amid supply revival. The oil giant resumed crude shipments from its Ras Tanura terminal after a four-month halt on Friday, Reuters reports, citing shipping data. Two very large crude carriers (VLCCs) operated by Bahri loaded cargoes at the facility, with a third heading to the terminal and a fourth waiting nearby — each vessel can carry around 2 mn barrels of crude.

The restart provides a push to restore oil export capacity: The Eastern Coast’s Ras Tanura previously exported 5 mn bbl / d of crude and is also home to the Kingdom’s largest domestic refinery, a 550k bbl / d facility that was temporarily shut as a precaution. Aramco’s last cargo from Ras Tanura was loaded for China on 8 March, with Saudi crude exports falling to around 4 mn bbl / d over the past three months, from more than 7 mn bbl / d in February.

ALSO- Aramco is expected to cut its crude prices to Asia to a four-month low in August, as improving supply conditions weigh on regional markets, according to a separate Reuters survey. The company could reduce the premium for its flagship crude to USD 1.5-3 a barrel above Dubai and Oman benchmarks, a cut of USD 6.5-8 a barrel from July. Other grades are also expected to see similar reductions.

Behind the price cut: The crude flow recovery softened the market, easing supply disruption concerns. Additional pricing pressure was created by increased spot market availability from producers, including the UAE, Iraq, and Qatar, alongside expectations that Iran could raise exports after receiving relief from US sanctions. Global crude markets have also weakened, with cargoes from West Africa, Brazil, and the US trading at lower prices amid abundant supply.

The renewed loadings and pricing strategy come despite continued security risks in the Strait, where a vessel operated by Taiwan’s Evergreen Marine was struck by an unknown object last Thursday. Two US officials told the newswire Iran was responsible, while Iranian officials warned that ships operating outside designated routes would not be guaranteed safe passage.

Another exit?

Iraq is mulling an Opec exit as it reviews its options to raise production to address an ensuing fiscal crisis. A senior Iraqi oil ministry official told Reuters last week that Baghdad will have to consider all available options if its production quota is not raised substantially, citing a financial crisis driven by the Iran war that has slashed oil exports via the Strait of Hormuz. A formal spokesperson denied Iraq is considering the move in remarks to Bloomberg, saying that the initial reports did not reflect the government’s position.

The parallel is hard to miss. The UAE left Opec on 1 May, citing a growing mismatch between its rising production capacity and its quotas. The GCC country had been producing close to 30% below its capacity of 4.9 mn bbl/d. Iraq — one of Opec’s five founding members, in whose capital the organization was established in 1960 — would be a far more destabilizing exit.

How serious is Iraq? This is likely more of a pressure play ahead of the next ministerial meeting at Opec, not a genuine departure plan. But with production down nearly two-thirds since February, the leverage Opec holds over a fiscally strained member is eroding fast.

Meanwhile, Basra Oil Company has halted pumping at West Qurna-2 due to force majeure and a lack of tankers, cutting production to 50k bbl / d and directing volumes into storage. On the northern front, Iraq's North Oil Company says technical and engineering work on the Kirkuk-Ceyhan pipeline is complete, with a trial pump set to begin within two weeks ahead of a return to stable exports.

Small outlet, big gap: Iraq is preparing crude export through Syria’s Baniyas port at around 50k bbl / d, with truck shipments expected to start in early July once new unloadings are ready. The volume is notable as a new corridor, but 50k bbl / d equals roughly 1.5% of the 3.4 mn bbl / d Iraq was exporting through Basra before the war.

New Hormuz calculus

Oman floats a Hormuz fee: Muscat has told European officials that the strait can’t return to its pre-war operating model and that transiting vessels could face charges for services such as pollution response or navigational support, Bloomberg reports. Oman is also studying systems used at other chokepoints — including the Strait of Malacca, though it remains unclear whether any future charges would be compulsory.

Services, not transit: International maritime rules bar states from charging ships simply passing through an international strait, but allow non-discriminatory charges for specific services actually provided. That makes pollution clean-up, pilotage, and navigation support the likely language for any future Hormuz regime.

Market watch

Oil prices rose this morning after days of strikes between the US and Iran again slowed energy shipping through the Strait of Hormuz, Reuters reports. Brent crude futures climbed USD 0.58 to USD 72.57 / bbl by 04.15 GMT. WTI rose USD 0.88 to USD 70.11 / bbl.

The Baltic Index extends its slide: The Baltic Exchange’s dry bulk index — which tracks rates for the capesize, panamax, and supramax vessel segments — fell 2.6% to 2,524 points on Friday. The capesize index declined 4.9% to 3,640 points, while the panamax index rose 0.7% to 2,110 points. The smaller supramax index slipped 0.5% at 1,670 points.

The Drewry World Container Index rose 5% to USD 4,166 per 40-ft container last week, according to the latest index readings. The lift came as transpacific and Asia-Europe rates moved higher, with Shanghai-New York up (6%), Shanghai-Los Angeles (12%), and Shanghai-Rotterdam (1%). Frontloading ahead of potential US tariff changes and a 1 July bunker-fuel adjustment are keeping spot demand firm, with fresh carrier surcharges adding further upward pressure.

Data point

OMR 1.6 bn — that’s the value of Oman’s non-oil exports in 1Q 2026. Re-exports rose 4.6% y-o-y to OMR 367 mn, while chemicals led export-sector growth, up 17% to OMR 216 mn. Base-metal exports surged 10.8% to OMR 376 mn, and live-animal exports increased 6% to OMR 104 mn.

PSA

Dubai is offering businesses a chance to wipe out most of their outstanding customs penalties. Under a temporary scheme introduced by Dubai Customs, companies can secure an 80% reduction on eligible customs fines issued before 28 February — part of a broader economic support package aimed at easing financial pressures on traders and keeping goods moving through the emirate, according to a notice (pdf) on its website. Companies must submit applications to Dubai Customs before 31 December, and the authority is offering the option to pay in installments for duties issued between the start of March and the end of July.

Refresher: Dubai has been on a run of trade-easing measures, including customs duty waivers as part of its economic support package, which extended data grace periods from 30 to 90 days and waived duties on art imports.

Maersk levies weight surcharge on India-Europe containers: Maersk will introduce a USD 500 surcharge on 20-ft dry containers weighing over 22 tons moving from some northwest India ports — Nhava Sheva, Mundra, Pipavav, and Hazira — to Europe and the Mediterranean, effective 7 July. The fee is triggered by verified gross mass.

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The airspace opened up and the cost problem did not disappear

After more than three months into the war, airlines have learned how to fly around closed airspace, reroute aircraft, and rebuild schedules — but the pressure test became how can they absorb higher fuel, messy operations, and softer confidence before the model starts cracking.

The economics took over: The core question shifted from “can we fly at all?” to “which routes are worth flying under higher costs and higher operational risk?” Wouter Dewulf, professor of air transport management and economics at the University of Antwerp, tells EnterpriseAM.

Open skies, abnormal operations

Opened in parts, but operations are still being treated as a live risk map. The European Union Aviation Safety Agency’s (EASA) 24 June conflict-zone update still advises operators not to fly through Iranian, Iraqi, and Lebanese airspace, while urging caution over Bahrain, Kuwait, Israel, Jordan, Qatar, Oman, the UAE, and Saudi Arabia. The bulletin is valid until 1 July unless reviewed earlier.

The corridor map has changed: Europe-Asia traffic is still being pushed around the old Iran-Iraq corridor, with flows leaning on southern paths through Egypt, Saudi Arabia, Oman, and the UAE, or northern paths through Caucasus and Afghanistan, Dewulf argues. That keeps aircraft moving, but “on these two routings, air traffic control congestion and ad hoc (re)routing are major operational issues,” he adds.

The demand hit is still regional: The Middle East remains the pressure point as the total passenger demand fell 3.4% y-o-y in April, but demand outside the Middle East rose 1.2%. The regional carriers also took a direct hit, with demand falling 46.6%.

Fuel never left the story

The spike in spot prices is already feeding through airline cost bases, with the sharpest pain falling on carriers with weak hedge covers or no hedge protection at all, Hans Jørgen Elnaes, aviation analyst, tells EnterpriseAM.

The risk delayed, not dead: “Fear of jet fuel shortage has vapored away, at least until September and October in case Hormuz continues to be closed or has very limited export flows by jet fuel sea tankers,” Elnaes argues. The crude supply chain adds another layer of risk as “it takes 10-12 barrels of crude oil to produce/refine 1 barrel jet fuel and not all grades of crude oil are optimal for refining jet fuel,” he adds.

Hedge cover and premium cabins are giving some long-haul carriers room to push back against the fuel shock. Airlines with 60-80% hedge positions and strong premium demand have been able to recover part of the higher fuel bill through fare increases, Elnaes says. Lufthansa Group expected to recapture up to 60% of higher fuel costs in 2Q, mainly through premium fares and stronger premium demand, he adds.

Short-haul has less cover: The fuel shock is harder to pass through on short-and medium-haul routes, where competition is tighter and booking behavior is shifting, Elnaes tells us. That limits how far airlines can raise fares before demand pushes back, leaving less room to offset higher fuel expenses.

The old route map no longer clears

Scale is not the whole defense: “In today’s aviation market, agility is proving more valuable than size,” Richard Maslen, head of analysis at CAPA - Center for Aviation, tells EnterpriseAM. The airlines best placed for this phase are not simply the biggest, but those with diversified networks, stronger balance sheets, and the ability to move capacity quickly, he adds.

Capacity gets moved, not just cut: Airlines are already trimming monthly flights production by around 2-5%, mostly by reducing frequencies on dense routes, consolidating some services with partners and only selectively dropping loss-making routes, Elnaes says. The shift also includes moving aircraft out of weaker Middle East-linked operations and into more lucrative nonstop markets, while older widebody and narrowbody aircraft are being parked first because their fuel burn no longer clears the cost test, he adds.

The booking window matters now: The return of non-Gulf airlines in the region is likely to be slower because most carriers have already committed aircraft elsewhere and are deep into the summer booking window, Garth Lund, aviation consultant, tells EnterpriseAM. Airlines from South Asia and the Middle East are likely to be the most proactive in restoring Gulf capacity, while European and North American carriers may largely sit out the summer and return in earnest from autumn, he adds.

Stressed, not broken

“Full-service hub carriers are hit hardest operationally because their networks are built around connectivity. Emirates, Qatar Airways, and Etihad do not just fly passengers from A to B, they orchestrate global connection flows through Dubai, Doha, and Abu Dhabi as super connectors. When airspace access becomes uncertain, the hub wave structure becomes fragile,” Dewulf tells us.

Exposure is not fragility: Gulf carriers still have scale, modern fleets, cargo revenue, premium demand, state support, and deep operating experience, Dewulf highlights. “The Gulf hub model is being stress-tested, but not destroyed. The real question is how much cost and uncertainty these airlines can absorb before they need to structurally reduce, postpone, or redesign parts of their networks,” he adds.

Maslen takes a similar view — that Emirates, Qatar Airways, and Etihad remain relatively well positioned, given their geographic reach, strong brands, and diversified revenue streams, even as operating costs rise.

Riyadh Air: Launching into the storm

“For Riyadh Air, the timing is undoubtedly challenging, but it does not fundamentally alter the long-term [window],” Maslen argues. The timing is harder than planned, but the airline doesn’t have an old network to unwind. As a greenfield carrier, the newly launched carrier can build its fleet deployment, cost base, and product around the market it is launching into, rather than retrofitting a legacy model, Dewulf says.

Starting now may not be a bad call; at least the new carrier can build around the mess. “Riyadh Air has the advantage of being able to design for the future rather than adapt from the past,” Maslen says. Also, Saudi Arabia is less affected than other regional markets, has a larger domestic base, and Riyadh Air is likely to start with a more point-to-point network than the existing Gulf supper-connectors, Dewulf adds.

What if peace starts the next squeeze?

Recovery could become another pressure point for aviation, Sindy Foster, principal managing partner of Avaero Capital partners, tells EnterpriseAM. Even if hostilities ease, airlines may still come out of the war carrying higher fuel bills, elevated premiums, aircraft availability constraints, weaker balance sheets, and more cautious travelers. So, “recovery does not necessarily mean a return to previous conditions,” she adds.

The Gulf’s recovery is a capacity rebuild — not just a margin play: Gulf-based airlines are operating at around 90% of pre-conflict capacity, Lund says. Even with a peace agreement, most regional airlines will need at least a few weeks to fully restore capacity because adding flights requires lead times for sales, crew rostering, and potentially maintenance checks for aircraft grounded during the conflict, he argues.

Peace doesn’t restart every market at the same speed: For non-Gulf airlines, the first relief would be financial — lower fuel costs, better margins, and stronger cashflow — rather than a dramatic capacity rebound, Lund says. For Gulf carriers, the recovery is more operational, with flights, crews, aircraft, and confidence needing to be rebuilt in sequence.

Egypt moves closer to Mediterranean oil trading hub

Egypt aims to complete a USD 457 mn expansion of Al Hamra Petroleum Port in New Alamein by December, Arabic Press reports, citing a government source. The project, being developed by state-owned Wepco in partnership with the UAE’s Fujairah, will increase crude storage capacity to 5.3 mn barrels from the current 2.5 mn barrels.

The expansion includes USD 122 mn of works in the port’s northern section and another USD 335 mn in the southern section — which will include a two-phase petroleum products storage and loading complex with capacity of 130k tonnes, housing storage tanks for diesel, gasoline, and jet fuel. The government aims to expand Al Hamra’s storage capacity to 20 mn barrels of crude oil and 400k tonnes of products by 2030.

The infrastructure behind the ambitions: The Egyptian Oil Ministry is targeting completion of a new pipeline linking the Midor refinery to Al Hamra during 2H this year, allowing refined products to be transported to the port for storage and export. The project would complete a two-way system that already moves crude from Al Hamra to Midor for processing, enabling Egypt to import crude, refine it domestically, and re-export higher-value petroleum products.

BACKGROUND- UAE’s Fujairah started working on its USD 3 bn oil logistics zone at Al Hamra Port last October, following three agreements signed by the Oil Ministry and the Emirate of Fujairah, including establishing a joint-stock company for a logistics zone in El Alamein, storing crude at Al Alamein’s Hamra Port, and supplying petroleum products to the Egyptian General Petroleum Corporation.

Avilease prices USD 650 mn bond

PIF-owned aircraft lessor AviLease priced a USD 650 mn bond issuance yesterday, drawing an order book that was more than 5.3x oversubscribed against the 3.75x that met its USD 850 mn debut last November. However, the coupon climbed to 5.50% from 4.75% on the inaugural note. The deeper book at a higher price points to a tougher rate backdrop.

Not a one-off: AviLease is now a repeat USD issuer seven months after opening the channel, with the new notes maturing June 2031 and issued via subsidiary AviLease Capital under its medium-term note program.

The 2025 numbers give investors something to price against: The company reported revenue of USD 664 mn last year, marking a 19% y-o-y increase. Its fleet now runs to roughly 200 fuel-efficient jets leased to 50-plus airlines, en route to a stated goal of cracking the global top 10 by 2030.

SAL lands Singapore Airlines, AKI secures NMC, and Nesma expands its fleet

SAL expands airlines handling book with Singapore Airlines

(xxMT>OG) SAL lands a Singapore Airlines mandate in Riyadh: SAL Saudi Logistics Services signed an annually renewable, on-demand agreement with Singapore Airlines to provide integrated air-cargo ground handling at King Khalid International Airport, covering cargo handling, aircraft loading and offloading, and ramp operations. No fixed contract value was disclosed — services will be billed on a per-use basis under an agreed pricing schedule.

Singapore Airlines follows Fly Khiva: Earlier this month, SAL inked a similar yearly renewable, on-demand cargo-handling agreement with Uzbekistan’s Fly Khiva Group — covering the same services.

AKI Logistics secures NMC contract

AKI Logistics takes on NMC’s UAE healthcare supply chain: AKI Logistics has signed a three-year agreement to manage warehousing and end-to-end distribution for NMC Healthcare’s pharma and medical consumables across the UAE. The operations will run from a dedicated Dubai Investment Park facility and will serve more than 80 NMC sites across Abu Dhabi, Dubai, Sharjah, Ras Al Khaimah, Umm Al Quwain, and Al Ain.

Calendar

AUGUST

30 August-1 September (Sunday-Tuesday): Air Cargo Middle East, Riyadh, Saudi Arabia.

30 August-1 September (Sunday-Tuesday): Saudi Warehouse and Logistics Expo, Riyadh, Saudi Arabia.

SEPTEMBER

16-17 September (Wednesday-Thursday): Saudi Maritime & Logistics Congress, Dammam, Saudi Arabia.

22-24 September (Tuesday-Thursday): Seamless Middle East, Dubai, UAE.

28-30 September (Monday-Wednesday): Transport Logistics Middle East, Riyadh, Saudi Arabia.

OCTOBER

12-14 October (Monday-Wednesday): The Airport Show, Dubai, UAE.

21-22 October (Wednesday-Thursday): Global Ports Forum, Singapore.

26-29 (Monday-Thursday): Air Cargo Forum, Miami, US.

27-29 October (Tuesday-Thursday): Routes World, Riyadh, Saudi Arabia.

NOVEMBER

2-5 November (Monday-Thursday): ADIPEC Maritime and Logistics Exhibition and Conference, Abu Dhabi, UAE.

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