Why fuel prices have remained unchanged despite attacks on Iran

Pump prices will remain unchanged for the next one month even as Kenyans anticipate the ripple effects of the US-Israel attacks on Iran to reflect on fuel costs during the next review. 

The Energy and Petroleum Authority (Epra) has retained pump prices for the March-April pricing cycle at the same levels as the previous cycle following modest increases in landed cost of super petrol. The energy industry regulator has also subsided diesel and kerosene, which registered slightly higher increases in landed cost.

“In the period under review, the maximum allowed petroleum pump prices for super petrol, diesel and kerosene remain unchanged,” said Epra in a statement.

“The average landed cost of imported super petrol increased by one per cent… diesel increased by 8.46 per cent… while kerosene increased by 6.79 per cent.” 

This will mean that super petrol prices will continue retailing at Sh178.28 per litre in Nairobi while diesel will retail Sh166.54 and kerosene at Sh152.78 per litre. To stabilise prices, Epra applied a subsidy to Sh6.53 per litre of diesel and Sh6.66 per litre of kerosene.

Pump prices could, however, go up next month as the war in the Middle East starts being felt in the region.

The export of petroleum products from the Gulf region has been severely affected following the sustained attacks on Iran by the US and Israel but also Tehran’s retaliation, hitting US military assets in the region and led to the blockage of the Strait of Hormuz. About 20 per cent of the global oil passes through the Strait. 

Epra had earlier in March noted that the March-April cycle would not be affected by the conflict. Epra computes pump prices based on prices of fuel delivered into the country between the 9th and the 10th of the preceding month, which means the retail prices announced on March 14 were based on fuel brought in early February.

The war has seen a surge in crude oil costs, which had increased to $119 per barrel of murban crude last week but slightly eased to $114 per barrel. This is compared to an average of $63 per barrel in February, according to the data used by Epra to compute current pump prices.

The government has been trying to calm Kenyans who have expressed concerns not just about pump prices but also the availability of petroleum products in the coming weeks. 

On Friday, Energy Cabinet Secretary Opiyo Wandayi said the country is adequately prepared to absorb any shocks from the Middle East. He cited the government-to-government oil contracts, where Kenya signed fuel supply contracts with Gulf oil firms, which are now expected to live up to their contract requirements for delivery of fuel to Kenya. 

The companies are however facing difficulties in exporting products as the Strait of Hormuz remains closed.  There has been speculation that the company might declare force majeure, which some of the countries have done and halted production. 

None of the companies in the G-to-G arrangement has declared force majeure but face difficulties in continued production and export, and mostly have to use alternatives, including bypassing the Strait of Hormuz and reducing production.

“The Ministry of Energy and Petroleum, working closely with international oil companies that supply us petroleum product under the Government to Government arrangement, we have put in place adequate mechanisms to ensure there will enough fuel in the country despite the war going,” said Wandayi, speaking at Tendeno village of Londiani Sub-County, Kipkelion East Constituency in Kericho County during the flagging off Last Mile Connectivity Projects.

“There will be enough fuel at petrol stations from now up to the end.” 

Kiharu MP Ndindi Nyoro has this week  raised concerns about the situation, noting that a hike was inevitable especially in the April-May cycle, but argued that any hikes should be preceded by tax cuts.

Nyoro argued that the government has, over the last three years, denied Kenyans reprieve at the pump, even as crude oil prices dropped from over $100 per barrel to the recent months when they have hovered at around $70 per barrel. He noted that this has been due to higher taxes and levies, including the doubling of Value Added Tax and the Sh7 per litre increase in the Road Maintenance Levy (RML).

CS Wandayi however, accused Nyoro of making unfounded and misleading allegations regarding the G2G framework, noting that the arrangement was initiated during Nyoro’s tenure as Chair of the National Assembly Budget and Appropriations Committee. He emphasized that the programme was designed to stabilize the foreign exchange demand for fuel imports, guarantee consistent supply and shield the country from global market volatility.

The CS maintained that the current framework continues to support energy security and price stability while ensuring accountability within the petroleum supply chain.