Kerosene Burners

     The war between the United States, Israel and Iran has bumped up fuel unavailability and prices.  Some of it it is easy to understand: crude oil is traded globally, and tends to flow to where the dollars are.  Gasoline works the same way, and a lot of that crude oil input comes out the other end of the refinery as gas for your car.  We expect diesel to work the same way, and mostly it does, but there's a catch.

     See, diesel's down at the heavy end, with jet fuel, kerosene and home-heating oil (and past that to bunker oil, the tarry stuff they burn in big ships and old steam locomotives that didn't run on wood or coal).  And much of that gets "pre-bought" in bulk.  Airlines especially prefer to hedge their bets by buying months and months of jet fuel in advance (it's rarely a bad bet that fuel prices will go up over the long term), and a lot of it gets refined not too far from the source -- which for a lot of Europe, is in the Middle East, and you'd never, ever guess where those refineries are.... No, I'm kidding.  Of course they're located around or near the Strait of Hormuz.  There's not a lot of jet fuel refining capacity within the EU itself.  Why should they bother when Middle Eastern countries are happy to host those big, smelly, polluting refineries?  The answer to that question is coming home to roost.

     Jet fuel is a knotty problem.  The airlines have already bought it; it just can't be delivered.  And the refineries away from the conflict zone that are set up to make jet fuel are well able to make diesel -- which is not a clunky bulk-sold-in-advance market, and where the free flow of fuel to where prices are highest* leaves companies chasing after a distribution network and customers who are, however unhappily, already set up for and accepting of highly variable prices.

     Meanwhile, the economics of airlines are screwy.  Outside the U.S., many of the largest carriers are subsidized by their governments, instruments of national prestige as well as effective transportation.  By some measures, the U.S. airline industry as a whole never makes a profit: there are few losers every year, often cannibalized by their peers or propped up by past earnings, a handful of winners, and the rest break even.  Disruption in fuel supplies throws a wrench into this tipsy balance -- and prolonged disruption tosses in a stick of dynamite after it, the fuse fizzing.

     You will note an absence of hand-wringing assignment of blame.  Sure, Donald Trump's a bull in a china shop on his best days, his Secretary of Defense is a bloodthirsty pinhead with a weird take on religion, and the majority of Congress is a craven bunch of spineless losers being led around by the nose (not to mention the pompous ambition and negative charisma of the Vice President, which I won't) -- but the Middle East is a powder keg with a load of lit candles on top.  If it wasn't Mr. Trump's "splendid little war," it would be some other war in the region, and if it wasn't right now, it would happen next week, or next month, or next year.  It's going to happen, and it's going to keep on happening, as long as a politically unstable region produces such a large amount of the crude oil and its refined products that our entire civilization runs on.  The network of global trade in oil cannot be disassembled by any amount of domestic production: oil will always flow towards money.  Smart politicians would be working to reduce dependence on oil, especially as a primary energy source; this is the only controllable variable.  And guess what?  Our politicians are no smarter than the rest of us -- and our business leaders may be even less so.

     Get ready to ante up.  Again.  And if you were planning to fly anywhere soon, better count pennies.

     Update: The Strait of Hormuz is now, according to the Trump administration Iranian government, "completely open."  We'll see if everyone with a practical veto agrees -- but don't expect the worst parts of the mess to magically clear up overnight even if it's olly-olly-oxen-free.
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* This simplistic formulation ignores that it's a gradient, with high prices but excellent supply at one end and lower prices but low supply at the other.  The U.S. is (on average) rich, and if you've got the bucks, fueling up the Benz is no problem no matter what it burns.  A Third-World farmer might not even be able to find any to buy.  In between, countries are rationing fuel, requesting or requiring people work from home, asking "Is this trip really necessary?" and taking other economizing measures.  And airlines?  If things go on, some of 'em are going to get grounded, or go under altogether.
 
† Still the name of it.  Congress named it and only Congress can rename it, which they have not.