Kenya is expected to be one of the nations that could benefit from reduced fuel prices in the coming months after Iran accepted a ceasefire agreement with the United States and announced the reopening of the Strait of Hormuz, a key route for global oil shipments.
Analysts say the move should ease worries about possible disruptions to international oil supplies, which had intensified as tensions between Iran, the United States and Israel rose and sparked fears of higher fuel costs worldwide.
The Strait of Hormuz is one of the world’s most vital energy passages, with about 20 per cent of global crude oil supplies moving through the narrow waterway that connects the Persian Gulf to global markets.
Its shutdown had largely stopped the movement of hundreds of vessels, with the International Chamber of Shipping estimating that around 500 ships and 20,000 seafarers were stranded in Gulf waters during the crisis, according to AFP.
“Given the still-high earnings in the tanker sector, increased war-risk insurance is unlikely to become a major barrier,” Tim Smith, director at MSI, a maritime industry analysis firm, told AFP.
The reopening is especially important for Kenya because the country’s government-to-government fuel supply programme depends heavily on petroleum products sourced from Gulf states, including Saudi Arabia and the United Arab Emirates.
Introduced in March 2023, the arrangement allows Kenya to buy fuel on a 180-day credit basis from suppliers connected to Saudi Aramco, Abu Dhabi National Oil Company (ADNOC) and Emirates National Oil Company (ENOC), helping reduce pressure on foreign exchange reserves and support the Kenya Shilling.
Industry analysts have said tankers linked to Kuwait, Iraq, the United Arab Emirates and Saudi Arabia are expected to pass through the strait after the agreement.
The resumption of normal shipping operations could help stabilise global oil markets by reducing supply uncertainty, cutting freight and insurance costs, and easing pressure on crude oil prices that rose during the conflict.
Under the ceasefire agreement, Iran has pledged to reopen the Strait of Hormuz immediately, while the United States moves to remove naval restrictions that had affected shipping in the region.
“I am honoured to announce that the historic Islamabad Memorandum of Understanding has been electronically signed today between the United States of America and the Islamic Republic of Iran,” Pakistan Prime Minister Shehbaz Sharif, who helped mediate the negotiations, announced.
A continued drop in global oil prices could eventually be reflected in Kenya’s fuel pricing formula through lower landed import costs, which would be captured during future reviews by the Energy and Petroleum Regulatory Authority (EPRA).
Beyond fuel prices, reduced import costs could also lower demand for U.S. dollars needed to buy petroleum products, giving further support to the Kenyan shilling and easing inflationary pressure across the economy.