Middle East crisis: How MSMEs can beat rising fuel prices

Small businesses in the transport and logistics-dependent sectors have been advised to renegotiate existing contracts to factor in changes in fuel costs in the wake of elevated prices due to the ongoing US-Iran conflict. 

The Kenya Private Sector Alliance (Kepsa) also urges micro, small and medium enterprises (MSMEs) to leverage partnerships and deploy the use of data to map out movement to maximise usage of fuel. 

Kepsa, in its latest Cost of Doing Business in Kenya Report, has mapped out five MSME sectors which would be the most affected by the increase in fuel prices. 

These are transport and logistics, retail, manufacturing, agriculture, and travel and tourism. 

The private-sector lobby notes that the vulnerability of the Strait of Hormuz underscores how geopolitical pressures can exert outsized influence on global stability. 

“For most Kenyans, thinking ‘Operation Epic Fury’ doesn’t have a direct impact on their livelihoods; the risks are not abstract. They translate directly into possible higher fuel costs, tighter margins, and weaker consumer demand across transport, retail, manufacturing, agriculture, and tourism, among other sectors,” says Kepsa. 

It adds: “And while the government might put in place buffers and regulatory oversight to offer short-term reassurance, long-term resilience will depend on how proactively businesses diversify markets, manage costs, strengthen regional supply chains, and collaborate through industry bodies like Kepsa.” 

Kepsa notes in the document that the East African Community (EAC) nations, such as Kenya, which are net importers of refined petroleum products, tend to face severe macroeconomic threats whenever such shocks occur. 

“Particularly, the effect is most felt at the oil bowser and has a rapid transmission to MSMEs, the primary drivers of domestic economies,” the report says. 

Kepsa says a continuous surge in energy costs is likely to cascade through the economy, inflating the cost of transport, manufacturing and basic consumer goods. 

“For an economy already grappling with debt sustainability and challenges related to the high cost of living, a prolonged spike in fuel prices could severely erode purchasing power and destabilise government fiscal planning ahead of the Finance Bill 2026,” says Kepsa. 

The document notes that the transport and logistics sector is heavily dependent on fuel and that any disruptions will significantly increase costs to both consumer products and commuters. 

“This being a thin-margin sector, especially for SMEs, increased costs may lead to forced closures or downscaling of services,” the report says. 

The report singles out the retail sector as the heaviest absorber of global economic shocks, saying it is likely to suffer from increased shipping costs due to a sharp surge in insurance and re-routing.

As a net importer, Kenya is cited in the report as having electronics, agricultural inputs and other finished products among the goods expected to absorb these extra costs. 

“The multiplier effect is the reduced demand by consumers in expenditure on non-essentials to retail-led MSMEs,” the report says. 

Manufacturing and agriculture-based businesses are also going to be adversely affected due to their interdependence and their reliance as well on transport and logistics. 

A spike in energy and transport costs, Kepsa explains, is directly passed on to production costs. This leads to higher consumer prices in the domestic and international markets. 

“For small SME manufacturers, passing costs to the consumer is not as easy as it may be for larger manufacturers. This may lead to cutting down on profit margins to stay afloat,” Kepsa says. 

For the agricultural sector, which also relies heavily on transport to move raw materials and finished products to the markets, a disruption means increased consumer prices, reduced profit margins and higher freight and insurance costs for exporters of fresh produce such as tea, coffee and flowers. 

The transport factor is also expected to interrupt travel and tourism businesses. The report says tourist hubs such as Doha, Qatar, Dubai, and Abu Dhabi in the United Arab Emirates have been significantly affected. 

“For Kenyan SMEs operating in the travel and tourism sector, the escalation of the conflict has led to continued booking cancellations to these popular destinations,” Kepsa says in the report.

“Combined with airspace closures and flight suspensions, this disruption is expected to erode revenues and place sustained pressure on their bottom lines.” 

Kepsa advises MSMEs to renegotiate contracts and logistical plans to ease the burden of these added costs. They can also identify alternative buffer regional suppliers to reduce exposure to global geopolitical shocks. 

“Where possible, strike partnerships to fully leverage economies of scale for last-mile logistical arrangements,” says the lobby. 

Data, where possible, can be used to plan transport and inventory to maximise fuel consumption. 

Businesses in travel and tourism can pivot towards domestic and regional tourism within Kenya and the larger East African Community (EAC). 

“This can help replace some lost outbound revenue while reducing exposure to geopolitical risks,” Kepsa says.