"Three Wars, One Bill: How Hormuz, Ukraine and Sanctions
Are Squeezing the Express Giants and Pushing Up Global Prices"
by Larry C. Johnson
"This article is the result of my conversation earlier today during my flight from Istanbul to London. I was sitting next to a FEDEX pilot who was on his way to Paris via London. I asked him about aviation fuel prices and the effect on FEDEX and I got more than I bargained for. The world’s express carriers like to present themselves as barometers of the global economy. In 2026 they are also measuring something else: what it costs to run a global air network when two of the three main east-west air corridors are effectively closed. The answer so far is that FedEx and UPS are surviving the shock largely by passing it on to their customers. That cost doesn’t disappear. It moves down the supply chain and into the inflation numbers central banks are now fighting.
The fuel shock: The trigger was the Iran war. The International Energy Agency has described the near-total closure of the Strait of Hormuz as the largest supply disruption in the history of the global oil market. Brent peaked near $118 in late March, fell to about $70 by July 1, rebounded above $100 in late July, and climbed back to $109 in early September after renewed attacks on shipping and energy infrastructure. It has since eased to around $99 on hopes from US-Iran talks, but it is still up roughly 60% for the year.
Jet fuel has moved further than crude because refining margins widened. IATA’s latest weekly reading put the global average at $194.90 a barrel, up 7.4% in a single week. U.S. Gulf Coast kerosene-type jet fuel averaged $4.341 a gallon in September. The ground networks are exposed too: the national diesel average has hit a record $6.31 a gallon. For FedEx, the world’s largest cargo airline by fleet count, this lands directly on the cost line. In the quarter ended May 31, its fuel bill rose 66%, from $864 million to $1.43 billion.
The airspace squeeze: Russia plus the Gulf: The Ukraine war and Western sanctions had already closed Russian airspace to U.S. and European carriers after 2022. That added hours and fuel burn to Europe-Asia routes and handed a lasting advantage to carriers that still fly over Russia. Chinese, Turkish, Indian and Gulf carriers keep Russian access and can offer faster, cheaper Europe-Asia flights.
Then the Gulf closed as well. Eight Middle Eastern states closed or restricted their airspace in late February, leaving traffic squeezed through the Caucasus corridor between the Black and Caspian Seas, about 100 miles wide at its narrowest. Xeneta estimated that 16-18% of global air cargo capacity disappeared with almost no warning. Freightos data showed rates from South Asia to North America and Europe up about 50% early in the war.
By mid-July, Gulf carriers had restored 75-96% of schedules by routing south over Saudi Arabia and Egypt, adding 30-60 minutes to Europe-Asia services. Longer flights mean more fuel, lower payloads, more crew hours and less aircraft utilization. DHL Global Forwarding reported that rerouting around the Gulf hubs was reducing schedule reliability and raising operating costs. Air freight to and from the region itself also fell hard: Middle East and Africa exports were down 24% year on year.
How the integrators have held up: Here the story gets less straightforward than the headlines suggest. Surcharges have protected FedEx and UPS far better than airlines or asset-light truckers. FedEx’s chief customer officer said in March that the fuel surcharge was “doing its job” and would keep the company profitable.
The revenue numbers bear that out. In the March-May quarter, FedEx revenue rose 13% to $25 billion, with Iran-war fuel surcharges adding 5 percentage points of revenue. FedEx’s U.S. ground fuel surcharge stood at 26% in the week of August 17. UPS raised its full-year 2026 guidance to $91.2 billion in revenue and about $7.22 in adjusted EPS.
The pressure shows up in margins. FedEx beat estimates last quarter, but its operating income fell nearly 22% year over year. The mechanism is simple. The surcharge resets on a lag, and when fuel spikes, revenue and costs rise by similar dollar amounts, which dilutes the margin percentage. FedEx shares are down 6.6% over 30 days and 7.6% over 90 days, although still up 65.5% over one year.
The freight sector’s warning light went on this month. J.B. Hunt said Q3 earnings would fall 5-10% from the prior quarter, citing at least $10 million in extra fuel costs and $25 million in driver recruiting and bonus costs, which dragged down package-delivery stocks along with truckers.
Who pays: from shippers to consumers: On the evidence so far, shippers are bearing most of the cost. UPS’s CFO described the net profit impact of surcharges as “modest,” and FedEx said they were not a material driver of adjusted operating income. Critics have noted that neither company explained why surcharge percentages rose so sharply. For comparison, the U.S. Postal Service imposed its first surcharge on April 26, at 8% on most packages. One fact-check found no evidence of industry-wide gouging, but did find that some transport companies are collecting more in surcharges than they spend on fuel. From shippers, the cost flows into prices. That is where the carriers’ problem becomes everyone’s problem.
The inflation picture: The OECD’s interim outlook, published today, projects G20 headline inflation rising to 4.1% in 2026 and easing to 3.6% in 2027, while advanced-economy core inflation moderates from 2.7% to 2.5%. That split matters. This is mainly an energy shock that pushes up headline inflation, not yet a broad wage-price spiral. The OECD credits government support, input substitution, non-Gulf supply and oil reserve drawdowns with limiting the damage.
In the U.S., August CPI was 3.4% year on year, while core was 2.4%, the lowest since March 2021. Gasoline alone accounted for more than a third of the monthly increase. The Fed still took no chances. It raised rates to 3.75-4.00% on September 16, its first hike since 2023, citing the Iran energy shock, and most officials expect at least one more hike this year.
How freight costs reach the checkout: The express surcharges are a real but secondary channel. Shipping is usually a small share of a finished good’s retail price, so parcel surcharges add friction at the margin rather than driving CPI. The same jet fuel shows up much more clearly in passenger airfares, up more than 23% since August 2025.
Food is the more important channel. Diesel, packaging and fertilizer matter more than parcel rates, and a lot of fertilizer moves through Hormuz, which threatens global food prices. One inflation analyst who normally dismisses food and energy as mean-reverting now says he’s less confident about food, because energy is feeding into trucking and packaging costs.
The spillover into core inflation is what central banks fear. Economists warn that renewed rises in oil, gasoline and diesel could spread to other prices and to inflation expectations. So far median CPI looks relatively tame, and part of the rise in services inflation is airfares, which is really energy. The pain is not evenly spread. Energy- and food-importing emerging economies are far more exposed than the U.S. In the Philippines, diesel went above ₱140 a liter, about $10.75 a gallon. Weak currencies and heavier weights for food and fuel in consumer price indexes amplify the shock there.
Duration decides everything: The OECD’s June scenarios frame the stakes. If Gulf supply recovers from Q3 2026, the shock fades in 2027. If disruption lasts into late 2027, the result is much weaker growth and much higher inflation, adding about 0.4 points in 2026 and 1.3 points in 2027. The OECD’s baseline assumes energy prices fall in 2027, but it lists prolonged Middle East export disruptions and a very strong El Niño as key downside risks. With Brent near $99 and the Saudi East-West pipeline shut since September 11, that baseline looks optimistic.
A long disruption would also change the carriers’ position. Their pass-through model works only as long as customers accept it. The longer surcharges stay above 25%, the more small and mid-size shippers will downgrade from express to ground, from air to ocean, or simply ship less. FedEx’s own outlook assumed no further geopolitical disruptions and acknowledged that soaring fuel costs could weigh on results if customers pull back. The Russia-overflight disadvantage doesn’t go away when oil falls. And the gap between surcharge revenue and actual fuel cost could become a political and legal target.
The wars and sanctions have made running a global express network structurally more expensive: longer routes, fewer usable hubs, and fuel that stays high and swings unpredictably. So far FedEx and UPS have converted most of that cost into surcharge revenue, and their pain shows up as margin compression rather than losses. The cost has been passed downstream, where it adds to the energy-led inflation that has already pushed the Fed back into hiking.
For both the carriers and the inflation outlook, the deciding factor is how long the Hormuz disruption lasts. If jet fuel stays near $190 a barrel through peak season, the question stops being whether FedEx and UPS can pass costs on. It becomes whether their customers, and the consumers behind them, can keep absorbing them. The next markers are September CPI on October 14, and FedEx’s commentary on surcharge recovery and volumes in its fiscal Q1 2027 report."
Here’s my appearance with Soloviev live: https://disk.yandex.ru/i/0GLBKQSSG3S1cQ]
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