The European Union will impose a 4.7 percent duty on jet fuel imports from the Middle East starting next year, officials have said, in a move that could significantly increase costs for the EU's embattled airlines.
Last month, EU officials said jet fuel imports could dodge the new tariff thanks to a waiver known as airworthiness certificates or EASA Form 1 certificates.
After reviewing the system, however, the officials concluded that jet fuel cannot benefit from the waiver, which applies mostly to airplane parts.
The new duty comes after the European Union removed the Gulf states from its generalized scheme of preferences (GSP), which offers preferential trade status to developing economies, because they are now classified as upper-middle income economies by the World Bank.
EU officials, meanwhile, urged Gulf Cooperation Countries (GCC) to resume bilateral free-trade talks, halted years ago, that could lead to removing the tariff.
The tariff could have a significant impact on Europe's jet fuel prices and on Middle East refineries, which could lose a major market.
"There will be chaos. Europe will be stuck, they are short on jet fuel," a senior official at a Middle East producer said.
"At the end of the day, the consumer will have to pay for this. There is no way we will," he added.
European demand for jet fuel amounted to 1.2 million barrels per day (bpd) in 2012, of which one third was imported, most of that from the Middle East, according to the International Energy Agency (IEA) and traders.
The 4.7 percent tariff will take effect from January 1, 2014, John Clancy, an EU trade spokesman, said.
"Being a final product, jet fuel cannot benefit from any tariff suspension, as none of the tariff exemption regimes applies," he said.
"In these circumstances, the GCC should reconsider engaging again in bilateral negotiations with the EU, which have been suspended since 2007, to return as soon as possible to a duty-free regime in relations with the EU," Clancy said.
For Middle Eastern refiners, a decline in jet fuel exports to Europe would lead to a bigger shift towards other markets, the refining official said.
"Refiners in the Arab Gulf will maximize gasoil (production) at the expense of jet. I will give a discount and go to markets in Asia, Africa and South America," the official said.
European refiners do not have the capacity to supply all of the region's jet fuel requirement, and Indian refiners that do benefit from the GSP program are unlikely to be able to make up the difference if Middle East shipments drop off.
Jet fuel in Europe costs around $940 a tonne fob ARA.
The European Union has already said it will not impose new duties on imports of crude oil or diesel from the Middle East or Russia even after the review of the GSP. [ID:nL6N0E324G]
Fuel oil imports will also escape the new duties, officials said on Wednesday.
The European Union removed more than 50 countries from its GSP scheme, which left 89 states in the programme, mostly in Africa, Asia and Eastern Europe.
The changes will affect imports from countries including Saudi Arabia, Kuwait, Bahrain, Qatar, Oman and the UAE.