Kenya fuel debate driven by global markets, not politics, Economist says

Kenya’s fuel price debate is being shaped largely by global oil market movements, taxation levels and currency pressures rather than local political decisions, according to economist Odhiambo Ramogi, who says current subsidies are only cushioning consumers in a limited way while deeper structural issues remain.

Speaking on Friday during a Radio Generation interview, Ramogi said recent increases in pump prices should be understood within the context of international crude oil trends and supply disruptions, rather than being treated purely as domestic policy failures.

The recent fuel price increases are mainly driven by a sharp rise in global crude oil prices linked to geopolitical tensions in the Middle East, which have disrupted supply routes such as the Strait of Hormuz.

He noted that crude oil benchmarks, including Brent, have climbed above Sh12,900 per barrel, pushing up import costs for countries like Kenya that rely fully on imported refined fuel.

International benchmarks like Brent crude have surged above Sh12,900 per barrel, significantly raising the cost of imported petroleum products for oil-importing countries like Kenya.

Data from the Energy and Petroleum Regulatory Authority (EPRA) shows that landed fuel costs have risen sharply in recent import cycles, with petrol increasing by over 40% and diesel by nearly 69%, feeding into higher retail prices.

Kenya’s dependence on imported fuel, combined with a weakening shilling and high taxes, has intensified the impact of global price movements on consumers at the pump.

Even though government interventions such as reduced VAT and support through the Petroleum Development Levy stabilization fund have been introduced, Ramogi said these measures have only partly reduced the burden on households.

He observed that while global fuel prices have risen by up to 68% in some markets and crude oil by about 30%, Kenya’s estimated 24% rise falls within what he termed a “practical range.”

Ramogi said fuel pricing discussions in the country are often shaped by political narratives, with less attention given to the underlying market structure and fiscal policies that determine final costs.

He added that weak communication from authorities has created confusion and mistrust among the public.

“In the absence of honest conversation, what you create is a culture of mistrust,” he said, adding that this mistrust shapes how citizens interpret government decisions, including fuel pricing announcements.

He explained that fuel prices in Kenya are made up of several taxes and levies, including duty, railway levy, road levy, Petroleum Development Levy and value-added tax.

While some tax relief measures have been introduced over time, including partial VAT adjustments, he said the overall tax burden on fuel remains high.

Ramogi also outlined how the fuel subsidy system operates through a stabilization fund financed by the Petroleum Development Levy, which is used to soften sharp price increases.

According to him, the fund currently stands at about Sh16 billion and has been used intermittently since 2023 to stabilize pump prices.

He said that in recent interventions, about Sh6.2 billion was deployed to cushion consumers from rising costs.

However, he warned that subsidies do not always fully translate into lower pump prices due to inefficiencies in the supply chain.

He argued that importers and marketers may absorb part of the subsidy benefits, reducing its direct impact on consumers.

“What happens is the importers are given money so that by the time fuel lands in Kenya, it is sold at a lower price,” he explained. “But the efficiency of that system is not always guaranteed.”

Ramogi also noted that EPRA only sets maximum pump prices, meaning retailers may adjust their rates depending on competition and operating conditions.

Beyond short-term subsidies, he called for broader reforms in taxation and energy planning, warning that overreliance on fuel taxes could slow economic growth.

He further proposed long-term investments in refining capacity in northern Kenya, saying it could serve regional markets including South Sudan, Uganda and Ethiopia and reduce import dependence.

He said such development could strengthen Kenya’s position as a regional energy hub while improving supply stability.

On the shift to cleaner energy, Ramogi said electric vehicles should be seen as a complement to fuel use rather than a full replacement, noting that petroleum products remain central to transport and industry.

He concluded that Kenya’s fuel pricing challenges require a balance between immediate relief measures and long-term structural reforms, warning that failure to act could continue fueling mistrust and debate over energy costs.