Kenya Heads Into Fuel Shock as Prices Hit Record Highs

Kenyans are now paying the highest fuel prices in history. Diesel has jumped by KSh 46.29 to KSh 242.92 per litre, petrol is up by KSh 16.63 to KSh 214.25, and kerosene holds at KSh 152.78 kept there only by a steep KSh 98.60 per litre subsidy.A war in the Middle East has sent global fuel costs surging, and back home, the government’s failure to pay oil marketers what it owes them is making an already bad situation worse.

Start with what is happening globally. The US-Israel war on Iran and the closure of the Strait of Hormuz pushed Brent crude to a four year high of $126.41 a barrel in April. That shock has translated directly into Kenya’s import bill. Landed costs(price of the product and premiums) for kerosene rose by 105% in March, diesel rose by roughly 69%, and petrol by about 42%. Those percentages also tell you something about how the subsidy was allocated kerosene, the fuel most used by low income households, saw the sharpest landed cost increase continues to receive the heaviest subsidy at KSh 98.60 per litre. Diesel got a modest KSh 15.67, and petrol received nothing at all this cycle.

Now layer the domestic problem on top. The government owes oil marketers an estimated KSh 17 billion in unpaid fuel subsidies. To access product from the Kenya Pipeline Company system, marketers must pay all applicable taxes upfront but when you are owed billions and the product itself has become significantly more expensive, finding the money to pay those taxes first becomes nearly impossible. The result is not hoarding. Marketers simply do not have the cash to buy and move fuel, and that has triggered shortages across the country, hitting even the largest players: Vivo Energy, TotalEnergies, and Rubis.

For ordinary Kenyans, the impact will be felt far beyond the pump. Diesel drives nearly everything transport, farming, manufacturing, power generation and a KSh 46 jump in a single cycle will inevitably push up the price of food and other everyday essentials. Inflation already hit 5.6% last month partly on the back of rising fuel costs, and the new prices will add further pressure. But the bigger risk is what happens if the government does not clear soon enough the KSh 17 billion subsidy debt because then Kenyans will face two problems at the same time: fuel that is historically expensive and fuel that is physically unavailable.