Fuel shocker as prices jump by up to Sh28 per litre

By  John Mutua

Nation Media Group

Prices of petrol and diesel have increased by Sh12.93 and Sh9.90 per litre, respectively, from midnight, in a move that will spark inflationary pressure as consumers take a hit from the resurgence of the Middle East conflict.

A litre of petrol will retail at Sh226.96, up from Sh214.03, while diesel will cost Sh227.76, up from Sh217.86, in Nairobi. The increases come despite the State extending a reduction in Value Added Tax (VAT) on petroleum products for another three months, until mid-December.

A litre of kerosene has risen by Sh28.49 to Sh219.87.

The spike in pump prices reflects the impact of the renewed Middle East conflict, which has disrupted global energy markets and pushed refined fuel prices to their highest levels in more than a decade last month.

Fuel prices have a significant impact on inflation, with diesel heavily relied on for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.

Costly fuel is expected to trigger fresh inflationary pressure as farmers, goods producers and service providers factor the higher costs into the prices of their goods and services.

Inflation, a measure of the cost of living, hit 6.8 per cent last month, the highest in recent times since the 6.9 per cent recorded in January 2024.

In April, Kenya cut VAT on petroleum products from 16 per cent to 8 per cent for three months after crude oil prices surged following the US-Israeli war against Iran.

The government has extended the lower VAT rate for the second time to cushion households and businesses from volatility in global energy prices.

Landed costs—the cost of the product plus transportation—of refined fuel hit record highs in more than a decade last month, setting the stage for steep pump prices locally.

The surge in refined fuel prices underscores the impact of the renewed Middle East conflict, which has seen global Brent crude prices rise above $100 per barrel since last month. The price stood at $105.98 (Sh13,750.90) on Wednesday.

The US military destroyed multiple Iranian tankers last month following ballistic missile attacks by Iran's Islamic Revolutionary Guard Corps (IRGC) against US Navy warships as the Middle East conflict escalated.

Iran also directed attacks at US allies in the Gulf region, targeting critical infrastructure such as oil refineries and pipelines. The attacks have disrupted supplies, leading to higher prices of refined fuel in global markets.

The latest rise in local prices is expected to be felt in the coming days as service providers, farmers and manufacturers pass the increased cost of fuel on to consumers.

Diesel is the main fuel powering the Kenyan economy and is used to run farm machinery, industries and public transport.

The impact of rising global fuel prices in Kenya has been exacerbated by reduced subsidies or the lack of them, as seen in the latest review.

The Ministry of Energy and Petroleum warned in June that the subsidy kitty was rapidly depleting due to the steep subsidies applied since April, when the US-Iran war broke out.

For example, the State applied a record-high subsidy of Sh34.07 per litre of diesel to prevent prices from rising in the monthly review ending July 14 this year.

The subsidy kitty is funded through the Petroleum Development Levy (PDL), which is charged at Sh5.40 per litre of diesel and petrol and Sh0.40 per litre of kerosene.

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