Updated ,first published
The fragility of Australia’s jet fuel supply has been laid bare by the fire at the Geelong oil refinery, one of just two facilities in the country to produce the crucial product, as airlines grapple with the fallout from the US-Israel war on Iran.
Qantas, Jetstar and Virgin all projected confidence after the fire, saying they did not anticipate any disruptions to their supplies as a result of the blaze, which spared parts of the plant that produce aviation fuel.
Energy Minister Chris Bowen said the Viva Energy refinery was continuing to produce jet fuel “at reduced levels” due to safety precautions after the blaze broke out overnight, presenting more difficulties for airlines in need of the increasingly expensive product during a time of global scarcity.
“There will be an impact on production. At this point, production of jet fuel and diesel is continuing at the refinery at reduced levels for safety reasons as a precaution,” Bowen told Today on Thursday.
Viva confirmed that the jet fuel section of the Geelong plant escaped from the fire unscathed, but one unit that produces a component of aviation gas for smaller planes is offline, which will reduce output for those aircraft. Overall aviation fuel production has been cut back as part of the broader reduction at the plant while management assess the extent of the damage.
The blaze comes in the same week that Qantas disclosed a $600-$800 million blowout in fuel costs, the latest carrier to flag a sizeable impact from US-Israel war on Iran.
Qantas said there was currently no impact to Qantas and Jetstar flights at Melbourne Airport and that 90 per cent of the group’s jet fuel comes from overseas.
Qantas said earlier this week it had hedged about 90 per cent of its exposure in crude oil for the second half of 2026, which means it has contracts in place to blunt the effect of price fluctuations. However, that does not account for “refining margins”, which reflect the cost of turning crude oil into aviation fuel. It is “largely exposed” to that, the airline said.
Refining margins jumped from $US20 per barrel in February to a peak of about $US120, Qantas said. Virgin said it also been advised by Viva that there would be no material impact on its supplies from the refinery fire.
Virgin, which hedged both crude oil and refining margins, said it expected rising fuel costs to add another $30-$40 million to its fuel bill in the second half of 2026.
For the remainder of the second half of 2026, Virgin has hedged 92 per cent for Brent crude oil and 71 per cent for refining margins, the airline said. For the first half of 2027, Virgin has hedged 93 per cent for Brent crude but only 15 per cent for refining margins.
Global fuel prices soared in March after the US and Israel attacked Iran, and the state retaliated by striking other nations’ energy assets in the region, and closing the Strait of Hormuz – through which oil transits to Asian nations that provide much of Australia’s refined fuel.
Australian refineries produced an estimated 1.4 billion litres of jet fuel last year, while Australia used an estimated 10.1 billion litres of jet fuel, according to the Department of Climate Change, Energy, the Environment and Water.
Domestic refinery production of jet fuel accounted for 14 per cent of total jet fuel sales in 2025.
Hugh Dive from Atlas Funds Management said the Geelong fire “will have an impact” on jet fuel availability in Australia.
Temporarily, at least, “it will reduce the capacity to refine jet fuel in Australia,” Dive said. “Everyone is scrambling for jet fuel at the moment.”
Dive said he would be surprised if airlines didn’t impose fuel surcharges “very shortly”.
“It may get down to the situation where airlines physically can’t get hold of jet fuel,” he said.
Sydney-based Milford Australia portfolio manager Jason Kururangi said there could be “some limited impact” for jet fuel.
“But the clogging of global trade around oil is more meaningful for Australia’s airlines.”
“The fire likely shows the age of the existing refining capacity that we have,” he said of the 72-year-old site. Uncertainty about fuel supply “raises the question of whether the government should consider adding or underwriting refining capacity”.
Sheana Yue, senior economist at Oxford Economics, said the impact of the fire was “consistent with our broader view that the current shock is increasingly defined by refined product availability rather than crude supply”.
“The fire is an added risk to localised supply tightness, particularly for aviation, as Australia is already structurally reliant on imported jet fuel.”
Even if immediate disruptions were limited, “the incident highlights how operational outages can amplify regional shortages” and increase volatility, she said.
Qantas, Jetstar and Virgin have announced moderate reductions to flight networks since the beginning of March – with some impact being felt on Qantas and Virgin’s regional routes.
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Chris Zappone is a senior reporter covering aviation and business. He is former digital foreign editor.Connect via X, Facebook or email.