Warnings of costly shipments in the coming months and depletion of the subsidy kitty mean there is a risk that diesel prices could breach the Sh300-a-litre mark, ushering in pain for businesses and households in the form of record inflation.
Government officials and oil marketers anticipate that local pump prices will continue to rise as the energy crisis in the Middle East drags on, and due to reduced cash in the Petroleum Development Levy fund.
On Thursday, the energy regulator increased its retail fuel prices by up to 23.5 per cent, bringing the price of diesel to Sh242.92 per litre — an increase of Sh24.2 per cent since last month — amid squeezed global crude supplies and high energy prices caused by the conflict in the Middle East.
Without the subsidies offered in the April and May cycles, diesel would have traded at Sh279.58 per litre, while petrol would have retailed at Sh218.59 per litre, up from Sh214.25. A litre of kerosene would have risen to Sh333.48 from the current Sh152.78.
“Without a subsidy and with the continued closure of the Strait of Hormuz, the prospect of future price spikes and of diesel exceeding Sh300 per litre at the pump is looking increasingly likely,” said a senior energy ministry official who requested anonymity for fear of government reprisals.
The sharp increase in refined pump prices could stoke inflation and trigger a surge in costs across sectors. In Kenya, fuel prices contribute significantly to inflation as the country relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.
Trucks queue to refuel at a petrol station along Kisumu-Kakamega Road in Kisumu on May 6, 2026, as drivers seek to secure fuel amid supply constraints.
Photo credit: Alex Odhiambo | Nation
Inflation rose to 5.6 percent year-on-year in April, up from 4.4 per cent the previous month, according to data from the statistics office, marking the fastest increase in seven years.
The fund that protects Kenyans from the high cost of fuel has run out of money, with the state struggling to compensate retailers for selling diesel, petrol and kerosene below market price. This has left the state with debts of over Sh20 billion. Complicating matters further, Saudi Arabian firm Aramco has warned that the Iran war has forced it to change the terms of the government-to-government deal, stating it will deliver its consignment for May, June and July at a higher price.
Aramco Trading Fujairah (ATF) has informed Kenya that sourcing petroleum products from ‘other locations’ has incurred higher costs, which will be passed on to them. “The situation (the Iran war) has forced us to secure cargo from alternative locations to meet our contractual obligations. Sourcing from these locations will extend delivery timelines, and when combined with the current elevated price environment, will directly and materially affect the price at which we source our cargo,” Aramco said in a note to Kenya. “We are of the view that the above constitute a MAC Event, as defined in the Master Framework Agreement. We would like to request that the prices of the following upcoming shipments be amended.”
Kenya imports nearly all of its fuel products from the Middle East via government-to-government deals with Gulf suppliers, including ATF, Abu Dhabi’s ADNOC Global Trading Ltd and Emirates National Oil Company Singapore Ltd. Some clauses allow Saudi Arabia and the UAE to increase the cost of petroleum sold to Kenya in the event of a Material Adverse Change (MAC).
MAC events are significant developments that affect the execution of contracts. These include war, route closures and a significant increase in the cost of sourcing products, among others.
The Iran war has enabled the two Gulf States to raise prices in order to protect themselves from the increased cost of sourcing fuel from other countries and the subsequent higher freight and premium costs. Conflicts appear to be among the factors enabling the Gulf States to abandon price caps under contracts and increase fuel costs.
Aramco has also warned that stocks of diesel, petrol and jet fuel could reach ‘critically low levels’ ahead of the summer months (June to August) if the Strait of Hormuz remains closed.
Global analysts have warned that oil and gas prices will not fall any time soon, even if the war in Iran ends, citing pressure on fuel supplies and tight global markets.
Under the subsidy scheme, oil dealers retain the pump price announced by the Energy and Petroleum Regulatory Authority (Epra). The government then reimburses them for the difference, with the money drawn from the Petroleum Development Levy (PDL). The PDL is charged at a rate of Sh5.40 per litre of petrol and diesel. This was increased from Sh0.40 per litre in July 2021, as the state sought to build bigger buffers for the subsidy scheme.
The State owes oil marketers Sh6.042 billion from the subsidy offered in the month ended May 14. There is also a verified but unpaid bill of Sh1.7 billion and a further Sh9 billion awaiting verification. Vivo Energy tops the subsidy arrears for the month ended April 14 with an unpaid bill of Sh1.47 billion, followed by TotalEnergies Marketing Kenya at Sh737.57 million and Sh534.75 million for Rubis Energy Kenya.
Kenya has requested nearly Sh75 billion in emergency funding from the World Bank to manage the economic shocks triggered by the Iran war.
