Key takeaways:
- Kenya’s government has extended a cut in VAT on petroleum products till mid-October
- The government will also deploy a Ksh945 million ($7.31 million) subsidy to keep fuel prices steady in the July-August pricing cycle
- The moves come as renewed tensions around the Strait of Hormuz have unsettled global oil markets
Kenya’s government said Tuesday it is extending a cut in value-added tax on petroleum products for another three months, through mid-October, to shield households and businesses from volatility in global energy prices.
The Energy and Petroleum Minister Opiyo Wandayi announced the extension in a statement, saying the government would also deploy a subsidy worth Ksh945 million ($7.31 million) to sustain current fuel price levels through the July-August pricing cycle.
Kenya had first cut VAT on petroleum products to 8% from 16% in April, after crude oil prices surged following the outbreak of the U.S.-Israeli war against Iran.
Wandayi sought to reassure Kenyans that fuel remained readily available despite renewed hostilities between the U.S. and Iran, which have again unsettled global oil markets.
Kenya imports nearly all of its fuel from the Middle East through government-to-government arrangements, leaving it exposed to disruptions along regional shipping routes.
The extension follows a transport operators’ strike in May over fuel price hikes, which was suspended after a week.
Why officials say supply has held despite the Hormuz disruption
In a separate statement addressing the security of Kenya’s fuel supply, the government said commercial vessel traffic through the Strait of Hormuz has fallen to its lowest level in roughly two months, driven by renewed military escalation in the region and attacks on commercial vessels.
“The market remains unsettled, and the Strait of Hormuz remains constrained, with commercial traffic running well below its usual levels,” the government said in the statement, adding that global oil prices could move sharply in either direction within a single week.
Despite that volatility, the government said Kenya’s fuel supply has held firm throughout the disruption.
“Kenya’s fuel supply has held firm throughout. Under our Government-to-Government arrangement, cargoes have continued to be sourced from a wider set of loading regions beyond the Gulf, every scheduled cargo has arrived and offloaded on time, and fuel has remained available at the pump throughout the country,” the statement read in part.
The government-to-government deal’s role in cushioning prices
The government credited its state-to-state fuel procurement arrangement with insulating Kenya from freight and insurance cost spikes affecting other importers.
“While importers who depend on spot purchases and open tenders have watched their freight and insurance costs climb again with each fresh disruption, Kenya has continued to pay the same fixed freight and premium,” the statement said, adding that the fixed cost has kept landed fuel costs in check and allowed suppliers to source from alternative regions without passing higher costs on to Kenyan motorists.
The VAT reduction and subsidy add to a broader set of measures Kenya has relied on in recent years to manage fuel price volatility for consumers.Meanwhile, the country continues to depend heavily on imported petroleum products priced in dollars and shipped through routes vulnerable to geopolitical disruption.
