Southwest Airlines (NYSE: LUV) led declines, dropping 2.7% to $40.73 after ending its fuel hedging program in 2025, leaving it fully exposed to spot market pricing. Delta Air Lines Inc (NYSE: DAL) fell 2% to $57.97, while United Airlines (NASDAQ: UAL) declined 0.2.2% to $88.73. American Airlines Group (BMV:AAL) fell 2% to $10.82. European airline stocks suffered steeper losses, falling between 2.4% and 5.8% Thursday morning, with Lufthansa, Air France-KLM, easyJet, IAG, Wizz Air, Norwegian Air, and Ryanair all declining.

Jet fuel prices have jumped 15% in the past week, rising as much as $1.75 per gallon and potentially adding $1.5 billion or more in quarterly fuel costs for each major U.S. airline, according to industry estimates. "Across the three largest airlines, that could translate to nearly $5 billion in additional expenses. Airfares are likely to rise in the months ahead, even if oil prices begin stabilizing soon," warned Patrick De Haan, GasBuddy's head of petroleum analysis.

Brent crude futures jumped $8.54, or 9.28%, to $100.52 a barrel Thursday, while U.S. West Texas Intermediate crude climbed $7.22, or 8.28%, to $94.47, before settling down a bit. The tanker attacks occurred approximately 5 nautical miles south of Al Basrah near al-Faw port and the Umm Qasr anchorage area in Iraqi territorial waters, according to Energy News Beat. All crew members—estimated at around 25 across both vessels—were evacuated safely with no casualties reported.

Critical Thresholds for Airline Investors

Analysts warn that sustained WTI prices above $95 per barrel could force 5-10% downgrades to Q2 earnings estimates for major carriers, with unhedged operators like Southwest facing the steepest revisions. Fuel typically accounts for 20-30% of airlines' operating expenses and is their second-largest cost behind labor, making the sector particularly vulnerable to oil price shocks. Most major U.S. carriers abandoned fuel hedging programs over the past two decades after experiencing losses when prices fell.

United Airlines has already indicated the fuel cost spike will hit quarterly results, and other carriers may issue guidance revisions in coming days as management teams assess the duration of elevated prices. Morgan Stanley analysts noted that "the crack spread (the price gap between crude oil/gasoil and jet fuel) has recently widened sharply," suggesting airline fuel costs may rise faster than crude oil prices themselves—a particular concern for margin forecasts.

The operational disruption compounds financial pressure beyond fuel costs alone. The conflict has already forced cancellation of over 20,000 flights with thousands of passengers stranded, creating revenue losses and schedule chaos that add margin pressure to fuel-driven cost inflation. Several Asian airlines including Hong Kong Airlines announced fuel surcharge increases of up to 35.2% starting Thursday, signaling the cost increases are already flowing through to consumer pricing.

Regional Escalation Threatens Supply

The escalation extends beyond Iraqi waters to critical export infrastructure across the Gulf. Oman evacuated all vessels from its key oil export terminal at Mina Al Fahal as a precautionary measure following a wave of regional attacks, though the facility's operational status after evacuation remains unclear. The terminal exports around 1 million barrels per day of Omani crude, which was priced at approximately $132 a barrel on Thursday—well above Brent benchmark pricing.

Iraq's State Oil Marketing Organization (SOMO) halted operations at all its oil terminals following the attacks, calling them a threat "to the safety of maritime navigation and oil activities in Iraqi territorial waters." On Wednesday, Iranian drones struck oil storage facilities at Oman's Port of Salalah, hitting fuel storage tanks though no merchant vessels were damaged.

Iran's Revolutionary Guards have warned that any ship passing through the narrow Strait of Hormuz will be targeted, with at least 16 ships struck in the region since fighting began. "There are no signs of a de-escalation in the Gulf and as a result, there is no end in sight to the disruptions to oil flows through the Strait of Hormuz," ING analysts said Thursday.

A spokesperson for Iran's military command warned Wednesday: "Get ready for oil to be $200 a barrel, because the oil price depends on regional security, which you have destabilised." The statement, directed at the U.S., underscores Tehran's strategy of leveraging energy security as a pressure point in the broader conflict that began with U.S.-Israeli strikes on Iran on February 28, 2026.

What to Watch

The International Energy Agency announced plans to release 400 million barrels of oil from reserves—the largest such move in its history—with the U.S. releasing 172 million barrels beginning Monday, March 16. However, shares in Asia fell broadly Thursday as investors took "little comfort" from the announcement, according to Reuters, suggesting markets doubt whether even historic supply injections can offset Gulf disruptions.

Investors should monitor whether WTI holds above $95 per barrel through next week's U.S. strategic petroleum reserve release, as sustained prices at that level would likely trigger analyst downgrades across the airline sector. Management commentary on upcoming earnings calls will be critical for assessing how carriers plan to absorb or pass through fuel cost increases, with Southwest's unhedged position making it the most vulnerable to margin compression if crude remains elevated through Q2.