Forex reserves slide as Iran war tests Kenya economy firepower

Kenya’s foreign reserves dropped by about $800 million (Sh103 billion) in five weeks up to late April, as the Central Bank of Kenya (CBK) used them to support the shilling during rising global oil prices caused by Middle East tensions, which have strained households and businesses.

CBK data reviewed by The Standard shows dollar reserves stood at $13.226 billion (Sh1.71 trillion) as of April 29, equivalent to 5.6 months of import cover, down sharply from a record $14.022 billion (Sh1.81 trillion), a six-month import buffer reported on March 26 following the completion of a dual‑tranche Eurobond and Kenya Pipeline Company privatisation receipts. 

The $796 million drop occurred as the CBK intervened to smooth volatility after the closure of the Strait of Hormuz disrupted crude shipments through the vital chokepoint. 

Murban crude, a benchmark for Kenya’s oil imports, traded at $104.19 per barrel on April 28, a sharp escalation from $97.99 in late March, while Brent crude briefly spiked to $126.41 on April 30; its highest level since March 2022 before easing. The International Monetary Fund (IMF) has warned that the Iran war could trigger a global recession, cutting its 2026 growth forecast to 3.1 per cent from a pre‑war projection of 3.3 per cent.  

The World Bank, in its latest Commodity Markets Outlook, cautioned that energy prices could surge 24 per cent in 2026, reaching their highest level since the Ukraine war, with Brent crude forecast to average $86 a barrel for the year, a sharp increase from the $69 average recorded in 2025. “The closure of the Strait of Hormuz and military strikes on Iranian energy infrastructure have delivered a historic shock to global markets,” the report stated. 

Analysts warn that further reserve depletion could leave Kenya vulnerable just as external financing conditions tighten. 

Yields on Kenya’s Eurobonds, the effective interest rate which the government pays to borrow in US dollars from foreign investors, rose across all maturities during the week that ended April 30, CBK data showed.  

A higher yield signals that investors perceive greater risk and demand more compensation to hold Kenyan debt.  

For example, the yield on the 10‑year Eurobond climbed to 7.54 per cent from 7.39 per cent a week earlier, reflecting growing unease over the Iran war’s impact on Kenya’s economy and its ability to service external obligations. 

The CBK’s Monetary Policy Committee is scheduled to meet in early June to review its policy stance. Governor Kamau Thugge is expected to face tough questions over whether the Apex bank can maintain its easing cycle or will be forced to pivot towards defending the shilling as imported inflation mounts. 

The shilling remained stable in the period, trading at Sh129.19 per dollar on April 30, with little change from Sh129.21 a week earlier. But CBK’s firepower is no longer at its peak and with global crude prices showing no signs of retreat, the country’s once‑record cushion is being tested for real, analysts said.  

Analysts say the reserves are held primarily in US dollars, euros and Japanese yen, serving as a financial safety net that the CBK can tap to stabilise the shilling and mitigate volatility, a function that may prove critical in coming weeks.

The record reserves will also be crucial for government payments, including servicing external debts and funding essential imports such as medicines. 

However, analysts caution that the reserve strength is partly seasonal and tied to specific inflows rather than structural export growth. Kenyan exporters, from meat sellers and flower growers to horticultural producers, have announced losses running into billions of shillings following global supply chain disruptions linked to the Iran conflict. 

Adequate import cover is vital for Kenya, which relies heavily on imports for a wide range of goods. It serves as a buffer against external shocks, ensuring the country can continue importing necessary goods without overly depleting its reserves. A higher import cover indicates a more robust position, while a lower cover suggests vulnerability.