Fuel subsidy won't survive prolonged Iran war, expert warns
National
By
Denis Omondi
| Apr 16, 2026
Kenyans could pay more for fuel if tensions in the Middle East persist, threatening to drain the country's Petroleum Development Levy (PDL) Fund.
The fund is used to cushion pump prices during energy crises.
This warning comes after the Kenya Kwanza government withdrew Sh6.2 billion from PDL to shield Kenyans from the historic price hike covering the April 15 to May 14 pricing cycle with an experts saying the fund is already stretched dangerously.
Speaking on Spice FM on Thursday morning, oil and gas consultant Dr Patrick Obath laid bare the arithmetic of an unsustainable arrangement.
"A Sh5.40 levy is imposed on a litre of fuel, but the subsidy is Sh22 per litre. This means you need four months' collections to pay for one month. That is completely unsustainable," he said.
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Obath raised further alarm over the fund's finances, citing audited accounts that reveal it received only Sh25 billion from the projected Sh55 billion.
"What happened to the other Sh30 billion? It was most likely diverted. What we have is not enough for what is to come," he added.
The Energy and Petroleum Regulatory Authority (EPRA) in their latest review on Tuesday night put diesel and petrol prices at Sh206 which was followed by public outcry.
Beyond activating the PDL, the government said that it would reduce the Value Added Tax on fuel from 16 per cent to eight per cent.
This move shelved Sh9.37 off a litre of petrol and Sh10.21 off diesel, bringing retail prices to Sh197.60 and Sh196.63 respectively.
President Ruto framed the interventions as a deliberate shield against global market forces.
"We have stepped in to bring down VAT from 16 percent to 8 percent for the next three months until we make sure that we have gone through this phase," he said.
But with the relief measures temporary and the fund under pressure, Obath says Kenya must now look beyond subsidies.
He called on the government to promote fuel conservation and public awareness campaigns to reduce consumption — particularly as the Iran conflict threatens to choke the Strait of Hormuz, a critical artery for global oil shipments.
US President Donald Trump has hinted at military action to force open the Strait should negotiations set to take place in the coming days with Iran collapse.