The escalating conflict between Iran and Israel could have devastating ramifications on Kenya's economy, particularly in the energy sector, after the country sealed supply deals with three state-owned Gulf firms.
On June 13, conflict in the Middle East hit a new high after Israel launched massive strikes on Iranian nuclear and energy infrastructure in what was dubbed Operation Rising Lion.
These attacks targeted key assets in Iran, including two gas processing plants and multiple fuel depots, prompting Iran to fire back by launching over 150 ballistic missiles and drones at Israeli targets. The Iranian government says that the attack is just the tip of the iceberg, and more aggressive retaliations could follow if they are provoked further.
Amid the regional fallout, one of the pieces of infrastructure at risk is the Strait of Hormuz—a narrow but vital 33-kilometre waterway that sees nearly a third of global seaborne oil pass through on a daily basis.
Considered by many as the world's most critical oil route, any disruption in the Strait of Hormuz could have a significant ripple effect on countries like Kenya, which rely heavily on oil imports from the Gulf.
Because of the chaos in the Middle East, Iran has threatened to close the strait, and while full closure is unlikely, a disruption is definitely on the cards, and this could limit vessel traffic and effectively elevate global freight and fuel prices.
Oil-shipping rates have already soared amid the Iran-Israel war, with reports suggesting they have surged by nearly 60 per cent. This comes after tanker owners developed reservations about sailing into conflict zones, according to a report by Bloomberg.
For Kenya, this development is concerning, especially after the April 2025 renewal of the Government-to-Government (G-to-G) oil deal with three Gulf companies: two in the UAE and one in Saudi Arabia.
Energy and Petroleum Regulatory Authority (EPRA) Director General Daniel Kiptoo said that the three companies would continue supplying petrol, diesel, kerosene, and jet fuel under a 180-day credit plan.
Notably, the agreement was renegotiated to reduce fixed freight and premium costs by up to 13 per cent. While the country is set to activate the agreement toward the end of the year, assumptions of cost stability are being tested by uncertainty in the Israel-Iran conflict.
If the war persists, uncertainty will continue to loom over whether Gulf suppliers will absorb the extra costs or if they will pass them on to economies like Kenya. If the latter situation comes to fruition, pressure will be placed on Kenya's fuel prices and broader economic health.
For the first time in nearly a quarter of a year, fuel prices in the country spiked following EPRA's latest review for June. In the review released on Saturday, June 14, EPRA revealed that petrol had increased by Ksh2.69 per litre, while diesel and kerosene had decreased by Ksh1.95 and Ksh2.06 per litre, respectively.
At the time, the authority explained that the price of petroleum products was based on global market trends, as Kenya does not produce or refine its own petroleum; it imports already processed fuel from other countries.
With this in mind, the impact of the Iran-Israel conflict on global oil markets cannot be ignored. In fact, oil prices are already taking a hit as Brent crude jumped 12 per cent to Ksh10,135 (USD78.5) a barrel after Israel’s strikes before slipping to Ksh9,425 (USD73).
