State: Gulf firms to keep fuel flowing into Kenya despite Middle East crisis

Kenya is banking on the controversial government-to-government (G-to-G) oil deal it signed with Gulf oil firms to ensure an uninterrupted supply of petroleum products in the coming months, despite the crisis that has rocked the Middle East with no end in sight.

The Energy and Petroleum Regulatory Authority (Epra) said the three international oil companies with which Kenya signed a contract for the supply of fuel have assured the government that they will continue meeting their obligations. 

While confident, the sector regulator also cautioned that Kenya and the Gulf oil companies do not have control over the situation unfolding in the Middle East. 

Oil supply has been disrupted while prices have surged over the last two weeks following the coordinated attacks by US and Israeli forces on Iran.

Tehran has retaliated and thrown the Middle East into chaos. The unfolding crisis has disrupted global supply chains and thrown critical trade routes into jeopardy.

It has already seen oil murban crude oil prices increase to $91 (Sh11,830) yesterday, up from about $74 (Sh9,620) a barrel on March 1. Analysts project that this could go to even $100 (Sh13,000) per barrel, which could deal a major blow to Kenya, which is a net importer of petroleum products but has also failed to invest in strategic stocks. 

The government in March 2023 signed the deals with Saudi Aramco, Abu Dhabi National Oil Company (Adnoc), and Emirates National Oil Company (Enoc) for the supply of diesel, super petrol and kerosene on an extended credit period.

The deal, which was supposed to reduce the local oil industry’s demand for the US and stabilise the shilling, is expected to run to the end of 2027. 

“From a security of supply standpoint, as it stands today, we believe as a country we are secure, and we are comfortable,” said Epra Director General Daniel Kiptoo. 

“We have a contract with our existing suppliers who have confirmed that they'll be able to meet all their obligations. This is one of the benefits of entering into an arrangement with State-owned entities and also one of the credentials of this transaction (G-to-G) that the country is in.”

“The planned cargoes that we have scheduled in the course of this month through to the start of April are firm. And we hope that this continues going forward, recognising that this is a very fluid situation that we'll continue to monitor on a day-to-day basis.”

The G-to-G deal has been criticised for lack of transparency as well as exposing Kenyans to the high cost of fuel, with pump prices in the country being the highest in the region.

Kiptoo added that there have been instances where even multinational firms have reneged on contracts to deliver petroleum products, citing the war as a factor that is beyond their control.

“We have seen other commercial entities declare force majeure. We've seen other companies walk away from obligations that they have. But because of the solid relationship that we have, both at a bilateral level, at the State-to-State level, and also dealing with the government-owned oil companies, they are not likely to walk away from those obligations… this is what gives us the comfort that going forward we should be okay,” he said.

Kiptoo also said the firms with which Kenya has an agreement have different ports from which they load petroleum products. This would ensure that in case the Strait of Hormuz becomes impassable for vessels that may have loaded in countries such as Saudi Arabia and the United Arab Emirates, the firms could ship fuel from other ports where they have loading and storage points.

“These are traders with different load ports that can be relied on in the event that there's a challenge at one load port, so then the closure of the strait (of Hormuz) may not necessarily apply,” he said.

While oil prices have been on the rise, Kiptoo said this is unlikely to affect the retail prices that Epra will publish next week. 

“The product that we are pricing today (to be announced on March 14) was delivered into the country between the 9th and the 10th of the preceding month (February). So we do not anticipate the events that are currently occurring in the Middle East to have an impact on (the next) pricing cycle,” he said.

Petroleum Outlets Association of Kenya Chairman Martin Chomba warned that while the impact might not be immediate, Kenya might start seeing higher fuel prices soon. “There is no immediate cause for concern in Kenya. We are not there yet,” he said.

“Our fuel passes through the Strait of Hormuz, which borders Iran and Saudi Arabia. Iran has declared this strait closed and is targeting vessels. If these tensions persist, we will definitely feel the heat.”