Ruto faces fuel price dilemma as oil crosses $110 per barrel over Iran-US war

President William Ruto's administration faces a fresh economic headache after global oil prices surged past $110 a barrel, driven by escalation of hostilities between the United States and Iran that threatens to choke critical supply routes through the Gulf.

Murban crude, the specific grade of oil Kenya prefers to import and uses as its benchmark for fuel pricing, recorded the strongest increase among major oil grades, rising 3.75 per cent, or $110.80 a barrel as of Wednesday morning.

Just days earlier, on September 3, Murban futures were trading at around $106 per barrel, while the official selling price set by Abu Dhabi's national oil company for September stood at just $79 per barrel, meaning the current conflict premium has pushed prices nearly $32 above the official price.

For ordinary Kenyans, the surge in global oil prices heralds higher pump prices.

EPRA is set to announce its next fuel price review on September 14.

The Ruto government faces a difficult choice, absorb the cost through subsidies or pass it on to consumers already reeling from a cost-of-living crisis that has pushed inflation to 6.6 per cent.

The last time fuel prices spiked, in May 2026, a nationwide matatu strike forced President Ruto to intervene personally, and with 1,292 protests already documented since early 2025, any sharp increase risks fresh social unrest just 11 months before elections.

Brent crude, the global benchmark used for pricing most of the world's oil, passed $100 a barrel for the first time since July, while US West Texas Intermediate, the American benchmark, traded at $94.33, up 1.4 per cent.

The latest spike follows a dramatic escalation in the Strait of Hormuz, a narrow waterway between the Persian Gulf and the Gulf of Oman through which roughly a fifth of the world's oil supply travels during peacetime.

On Tuesday, the US military struck and destroyed five Iranian crude oil tankers in response to two Iranian efforts to hit a US Navy warship with ballistic missiles over two days.

US Central Command (CENTCOM), the American military headquarters responsible for operations in the Middle East, Central Asia and parts of South Asia – said forces attacked four Iranian oil carriers in the Gulf of Oman, the M/T Kaviz, M/T Charminar, M/T Horizon 1 and M/T Riesco, as well as the M/T Derya near Kharg Island, Iran's main oil export hub.

CENTCOM linked the vessels to the Islamic Revolutionary Guard Corps' "multibillion-dollar shadow network".

Iran has vowed retaliation.

The IRGC Navy, Iran's paramilitary force separate from its regular military, warned crews of oil tankers near ports in Kuwait and Bahrain to immediately abandon their vessels, saying the ships could be targeted in reprisal for US attacks.

Iranian state media reported that Tehran launched missiles toward US targets in Jordan, with Jordan's army saying it shot down 18 of 20 ballistic missiles fired.

"The recent escalation of the Middle East conflict has increased the likelihood of a prolonged standoff, punctuated by calibrated military action by the US and Iran," said Daniel Hynes, a senior commodity strategist at ANZ, a major Australian banking and financial services group.

"This could see Persian Gulf supply remain constrained through the rest of 2026."

Kpler, a global data and analytics firm that tracks energy shipments, reported no very large crude carrier exiting the Strait of Hormuz after September 2, with crude shipments from Middle Eastern producers falling to around 11 million barrels per day from approximately 18 million before the war began seven months ago.

For Kenya, a net oil importer that relies almost exclusively on Murban crude for its refined fuel imports, the price shock could not come at a worse time.

The country's annual inflation or cost of living measure accelerated to 6.6 per cent in August, up from 6.5 per cent in July, driven largely by soaring transport costs which surged 15.7 per cent year-on-year.

Food and non-alcoholic beverages rose 9.0 per cent, contributing significantly to the headline rate.

Transport costs alone contributed 1.5 percentage points to the total inflation figure. Core inflation,  which strips out volatile items such as food and energy to give a clearer picture of underlying price trends, increased to 3.4 per cent in August from 3.2 per cent in July, pointing to wider price pressures.

The latest oil rally threatens to reverse recent modest relief at the pump.

In the August-September pricing cycle, the Energy and Petroleum Regulatory Authority (EPRA), which sets fuel prices based on import costs and other factors, cut diesel prices by Sh5 per litre in Nairobi, while super petrol remained at Sh214.03 and kerosene at Sh191.38.

Those prices were set when Murban crude traded around $72-87 per barrel, nearly $30 lower than current levels.

EPRA is set to announce its next pricing cycle on September 14, (Monday, next week) and analysts warn that the government may soon be forced to choose between absorbing higher fuel costs, by dipping into state coffers to subsidise prices, or passing them on to consumers already struggling with elevated living costs.

The government has previously intervened to cushion consumers.

In May this year, a nationwide matatu strike over rising fuel prices forced President Ruto to personally intervene.

The strike, which caused widespread transport paralysis, was called off on May 22 after consultations with the President at State House, Mombasa. Ruto disclosed that the government had spent Sh28.19 billion on fuel stabilization across the April-May and May-June 2026 pricing cycles.

"The government has spent Sh28.19 billion to cushion Kenyans against the high fuel prices," Ruto said at the time.

The economic strain has already triggered widespread social unrest.

A study by Odipo Dev, a Kenyan research and data analytics firm, and Amnesty International Kenya documented 1,292 protests between January 2025 and June 2026, with economic grievances emerging as the leading driver.

In the first half of 2026 alone, 453 protests were recorded, a 29 per cent increase from the same period in 2025.

The May 18, 2026 anti-fuel-hike protests turned violent, with the Ministry of Interior reporting 348 arrests and the Directorate of Criminal Investigations recording 710 arrests on the same day.

Workers across multiple sectors have taken industrial action. Nurses across all 47 counties have been on strike since July 29, 2026, demanding better pay and working conditions.

County government workers have threatened a nationwide strike over delayed implementation of collective bargaining agreements, while health interns had threatened to commence a strike on August 31 over delayed payment.

Treasury Cabinet Secretary John Mbadi has faced sharp criticism over remarks suggesting Kenyans were better off because of increased consumption of soft drinks, a claim that drew widespread ridicule.

The country's cost-of-living measure has now remained above the midpoint of the Central Bank of Kenya's 2.5 per cent to 7.5 per cent target range for a fifth consecutive month.

Goldman Sachs, a major American multinational investment bank that closely tracks global energy markets, has raised its Brent and WTI price forecasts by $5, reflecting expectations that Middle East shipping disruptions will continue into 2027.

"We don't expect a full return to pre-war throughput until late Q1 or early Q2 2027," ANZ's Hynes was quoted saying.

With the next General Election scheduled for August 10, 2027, just under 11 months away, the Ruto administration faces mounting pressure to contain living costs even as fiscal space remains constrained by high debt levels.