Airline ETFs on the Radar Amid Intensifying US-Iran Feud

The ongoing war situation in the Middle East has intensified over the past couple of days, with U.S.-Israel joint strikes on Iran disrupting travel and transportation across the region. Major Gulf hubs, including Dubai, Doha and Abu Dhabi, have been forced to close or severely restrict operations, leading to the cancellation of more than 21,300 flights at seven major airports (as per Flightradar24 data cited in Investing.com).

As governments scramble to evacuate stranded citizens and airlines reroute aircraft through narrow corridors, the airline industry is bearing a major brunt of the conflict—bringing airline stocks and, by extension, airline exchange-traded funds (ETFs) under renewed scrutiny from investors.

While the immediate impact on global carriers is palpable, the intrinsic link between global stability and aviation profitability necessitates a closer look at how war reshapes the industry’s immediate financial health and whether there remain long-term recovery prospects, as explored below.

The airline industry’s vulnerability to geopolitical conflict operates through two primary channels: operational disruption and soaring operating costs. First, the closure of the Middle Eastern airspace has eliminated critical flight corridors between Europe and Asia, forcing carriers into longer, fuel-intensive routes. This operational complexity strains fleet utilization and crew scheduling while delaying cargo deliveries worth billions of dollars.

Second—and perhaps more consequentially—crude oil prices have surged roughly 21% over the past month (as per Trading Economics data) amid the widening conflict, directly threatening airline profit margins through higher jet fuel costs. This price surge was driven by an escalation in the U.S.-Israel war on Iran that caused major disruption to production and supplies, with Iran having blocked the Strait of Hormuz, through which one-fifth of the global oil supply passes.

With most U.S. carriers having abandoned fuel hedging strategies over the last decade, such oil supply disruption has left them fully exposed to price spikes. Delta Air Lines DAL, for instance, faces approximately $40 million in additional annual fuel costs for every one-cent increase per gallon—meaning a 10% fuel price jump would add $1 billion to its 2026 expense (as per Third Bridge analyst Peter McNally’s estimate).

Several major U.S. airlines are already feeling the brunt of this war at the bourses, with shares of major U.S. carriers like United Airlines UAL, American Airlines AAL and DAL having slipped over the past couple of days. These declines reflect growing investor concern that elevated fuel expenses will squeeze second-quarter earnings of these carriers, particularly if the conflict persists and forces further cancellations or rerouting.