With Middle Eastern airspace under pressure, Juwai IQI Global Chief Economist Shan Saeed warns that duration — not intensity — will determine the true economic cost to global aviation and supply chains.
By TENGKU NOOR SHAMSIAH TENGKU ABDULLAH
KUALA LUMPUR, Mar 3 – As geopolitical tensions cast a shadow over key aviation corridors, one of Asia’s leading economic voices is urging the industry to focus less on the immediate shock and more on how long disruptions persist.
In an exclusive interview with TNS News, Shan Saeed, Global Chief Economist at Juwai IQI, outlined how sustained airspace constraints across the Middle East could ripple through airline economics, freight markets and global supply chains.
A Strategic Corridor Under Pressure
The Middle East is not merely a regional transit zone. It handles roughly 15–20 per cent of global long-haul connectivity, linking Asia, Europe and Africa. At the centre of this system sits Dubai International Airport, processing over 85 million passengers annually and functioning as a critical intercontinental hub.
“Airlines are engineered for contingency. When airspace constricts, safety protocols activate, routes are recalibrated, and fleet utilisation models are re-optimised in real time,” Shan said.
Yet operational flexibility has limits. When key corridors close or narrow, flight durations extend by 60 to 120 minutes, aircraft productivity declines, crew duty thresholds tighten, and network efficiency compresses.
In the short term, carriers absorb this through schedule compression and asset redeployment. But if disruption extends beyond several weeks, tactical adjustments give way to structural recalibration.
“Aviation is elastic — but elasticity has a time horizon. Duration defines structural impact,” he stressed.
The Financial Arithmetic
The cost exposure is immediate and measurable. Each additional long-haul hour typically adds between US$6,000 and US$10,000 in fuel and crew costs, alongside navigation charges and accelerated maintenance cycles.
“With thousands of daily transits across affected corridors, even partial diversion can translate into hundreds of millions of dollars per month in incremental industry cost,” Shan explained.
Systemic Connectivity: The Middle East corridor facilitates 15% to 20% of global long-haul connectivity, linking the “Global East” (Asia) with Europe and Africa.
The Cost of Rerouting: Every additional flight hour adds US$6,000 to US$10,000 in fuel, crew, and maintenance costs.
Industry Exposure: A contained escalation carries a US$1 billion near-term impact; however, a prolonged impasse combined with Brent crude rising toward US$90/barrel could expand losses into the US$5 to US$10 billion range
Supply Chain Strain: With air freight representing 35% of global trade value, disruptions introduce “incrementally inflationary” pressure on high-value sectors like semiconductors and pharmaceuticals
The Insurance Spike: Geopolitical uncertainty is triggering temporary 10% to 30% increases in aviation insurance premiums.
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The challenge lies in the sector’s thin margins. Airline net profitability during stable cycles averages just 3–8 per cent. Sustained disruption compresses margins quickly, particularly if fuel volatility intensifies.
Shan estimates near-term impact at approximately US$1 billion under contained escalation. However, he is clear about the upper-end risk.
“If closures extend several months and Brent shifts materially higher — for example from US$75 toward US$90 per barrel — cumulative exposure could plausibly expand into the US$5 to US$10 billion range,” he said.
“The decisive variable is not the shock. It is the persistence of elevated fuel and routing complexity.”
In other words, the industry can manage a sharp but short-lived event. Prolonged disruption is where structural damage begins to emerge.
Cargo and Supply Chain Transmission
The implications extend beyond passenger travel. Air freight accounts for roughly 35 per cent of global trade value transported by air, with Middle Eastern hubs serving as vital bridges for Europe–Asia flows.
Semiconductors, pharmaceuticals, automotive components and high-value electronics all depend on time-sensitive connectivity. Disruption introduces higher freight rates, longer delivery cycles and working capital strain for just-in-time supply chains.
Alternative corridors through Southeast Asia or Central Asia offer partial relief, but at higher cost and reduced efficiency.
Shan characterises the likely macroeconomic effect as “incrementally inflationary, not systemically destabilising — unless duration extends meaningfully.”
That distinction is critical. A temporary cost spike raises freight rates and squeezes margins. A prolonged rerouting environment could embed inflationary pressure across trade-sensitive sectors.
Insurance, Hedging and Liquidity
On industry resilience, Shan points to aviation’s established playbook for geopolitical uncertainty.
Insurance premiums typically rise 10–30 per cent during periods of regional tension. Fuel hedging volatility increases, and airlines bolster liquidity buffers within capital planning frameworks.
Carriers respond by diversifying route dependency, strengthening hedge ratios and expanding contingency reserves.
“The aviation sector has historically normalised within quarters following regional shocks — provided de-escalation materialises,” Shan said.
History supports this view. From Gulf tensions to pandemic-era disruptions, aviation has demonstrated recovery capacity — though the pace of normalisation depends heavily on geopolitical clarity.
The Central Variable: Time
For Shan, the summary is precise.
A US$1 billion impact reflects contained, near-term disruption. The US$5–10 billion scenario becomes plausible only under prolonged airspace closure and elevated energy risk premia.
“Duration — not intensity — determines economic transmission. Stability remains the primary circuit breaker,” he concluded.
In essence, the industry is designed to absorb shocks. What it cannot easily absorb is uncertainty that lingers.
For now, the threat to global aviation is measured but material. The difference between turbulence and structural stress will be decided not by the size of the initial disruption, but by how quickly geopolitical tensions ease.
- TNS NEWS