Iran war hits kitchens as shilling slumps, forex reserves dwindle

For Jane Nduta, a mother of four in Naivasha’s Karagita Estate, the escalating conflict  in the Gulf region is no longer a distant news headline. It is the reason she can no longer afford a full meal for her children.

“Every morning, the price at the kiosk changes,” she told The Sunday Standard, gesturing to a small bowl of tomatoes.

“Last month, I bought three for Sh20. Today, I can only get two for that price. The war feels like it is right here in my kitchen.”

Nduta’s struggle is the human face of a deepening economic crisis thousands of miles away from where the conflict is playing out. 

As the Middle East conflict involving Iran,  the US and Israel intensifies, the shockwaves have crossed the Indian Ocean, landing squarely on Kenyan homes. 

A potent mix of imported inflation, a weakening shilling, and shrinking foreign exchange reserves is squeezing consumers already battered by years of economic hardship. Data released this week by the Kenya National Bureau of Statistics (KNBS) paints a grim picture. 

While headline inflation edged up marginally to 4.4 per cent in March, the real pain is found in “non-core” inflation, which strips out stable prices to focus on the volatile costs of food and energy. 

That figure surged to 10.8 per cent in March, up from 10.1 per cent in February, driven almost entirely by the rising cost of basic survival.

The drivers are unmistakable. The food and non-alcoholic beverages index has jumped 7.7 per cent over the past 12 months. 

In just the last 30 days, tomato prices skyrocketed by 13.3 per cent, while the cost of beef with bones rose by 1.8 per cent. 

These spikes are directly linked to imported inflation caused by the Gulf conflict, which has disrupted global supply chains at their most vulnerable points, traders and sellers say. 

The effective closure of the Strait of Hormuz, a chokepoint for about 20 per cent of the world’s oil and trade, has forced tankers onto longer, costlier routes. 

Shipping insurance premiums have quadrupled, and container vessels carrying everything from cooking oil to electronics face weeks of delays. 

The result: Murban crude oil prices remained elevated at above $100 (Sh13,000) per barrel this week, despite a slight tactical dip. The price of Murban Crude yesterday was $114.84 (Sh14,928) per barrel, data showed. 

The Kenyan shilling is also feeling the heat. By April 2, the currency had slipped to Sh129.99 against the US dollar, continuing a downward trend from Sh129.72 just a week earlier. 

A weaker shilling acts as a multiplier for inflation, making every imported barrel of oil and every tonne of imported grain more expensive for local consumers. 

Kenyans will find out on April 14 whether the escalating Gulf conflict will finally hit their wallets at the pump, when the Energy and Petroleum Regulatory Authority announces the next monthly fuel prices for the cycle beginning April 15. 

Under the current review, a litre of petrol retails at Sh178.28 in Nairobi, diesel at Sh166.54 and kerosene at Sh152.78, rates that have been shielded from the surge in global crude oil prices because the imported cargo was secured before the war disrupted supply chains.  

But with the closure of the Strait of Hormuz driving up shipping and insurance costs, analysts warn that a sharp increase is looming when the new prices take effect. 

In the last month, there has been a 2.5 per cent jump in electricity prices for low-income households (50 kWh). 

Simultaneously, the nation’s primary defence against currency volatility, its foreign exchange reserves, is beginning to look thin.  

Data from the Central Bank of Kenya (CBK) shows reserves fell from Sh1.82 trillion ($14.02 billion) in late March to Sh1.78 trillion ($13.66 billion) by April 1, a Sh47.6 billion ($366 million) drop in a single week. 

While the CBK insists reserves remain “adequate” at 5.8 months of import cover (above the statutory four-month requirement), analysts warn that a prolonged conflict could quickly erode that buffer. 

Small businesses

The crisis is not just about what Kenya buys, but also what it receives.  

For years, Kenyans working in Gulf nations have been sending home billions of shillings in remittances, supporting everything from school fees to small businesses.

However, as the conflict draws in many Gulf countries, this vital lifeline has been damaged. 

Instability in the region has disrupted employment and income for thousands of Kenyan workers, leading to a noticeable slowdown in the flow of funds back home.

This “remittance shock” further reduces available foreign currency, piling more pressure on the shilling. 

Trade has also become a casualty. While Kenya’s tea exports have remained surprisingly resilient – with 81 per cent of offered tea sold this month, compared to 75 per cent last year, thanks to market diversification, other sectors are reeling. 

“Meat exports have been affected due to logistical and freight challenges,” a government report noted, as shipping routes become more dangerous and expensive. 

Faced with growing public unease, President William Ruto has moved to calm markets and Kenyans. 

In his briefing on March 30, the President acknowledged that “the ongoing conflict in the Middle East is having a significant impact” and that “Africa, including Kenya, is not immune to these effects.” 

Ruto, following meetings with the Treasury and the CBK, was quick to highlight government interventions that he said have prevented a total economic collapse.  

“Regarding petroleum products… the government-to-government fuel procurement arrangement has cushioned Kenyans from immediate shocks,” he stated, describing the move as a “strategic intervention” that has “mitigated price increases, ensured security of supply, and proven to be both prudent and forward-looking.” 

The President also sought to reassure the agricultural sector, the backbone of the Kenyan economy, noting that the State had secured enough fertiliser to last through the September rainy season. 

“I wish to assure the nation that no disruptions are expected [on fertiliser],” he said, even as he admitted that the Ministry of Energy was still identifying further “mitigating measures” to handle rising international fuel prices. 

Despite the State’s reassurances, the outlook remains precarious. The CBK’s weekly bulletin warns of “persisting inflation concerns” and “ongoing geopolitical risks.”

For the average Kenyan, these are not abstract terms. They represent the difference between three meals a day and one. 

Kenyans are feeling the pinch ahead of next week’s Monetary Policy Committee meeting on April 8, with the shilling under pressure, foreign reserves dwindling, and fuel prices poised to rise as the Gulf war disrupts supply chains.  

During the meeting, the Central Bank of Kenya’s rate-setters will weigh whether to hold the benchmark lending rate at 8.75 per cent or ease further, even as imported inflation squeezes households and businesses across the country. 

The “imported inflation” cycle, where war in the Gulf drives up oil, oil drives up transport, and transport drives up the price of a cabbage in a Nairobi market, is a difficult loop to break.  

With foreign reserves shrinking and the shilling under relentless pressure, the Ruto government’s capacity to keep cushioning consumers is stretched. 

“The government remains committed to closely monitoring developments and taking decisive action to safeguard the economic well-being of all Kenyans,” President Ruto said in his address.

But for Jane Nduta and millions like her, the “decisive action” needed is the one that brings down the price of the food on her table, a tall order for the Ruto government as long as the drums of war continue to beat in the Gulf.