Govt defends G-to-G fuel deal, cites Middle East conflict for fuel

Kenya's Ministry of Energy and Petroleum is defending its controversial government-to-government (G-to-G) fuel procurement strategy against mounting criticism, citing persistent external shocks as justification for the approach. The ministry argues the strategy is essential given Kenya's structural vulnerability as a net petroleum importer, with Middle East geopolitical tensions compounding already volatile international crude prices, freight charges, and marine insurance premiums.

## Why is Kenya's fuel import bill under pressure?

Kenya imported approximately 73% of its petroleum products in the 2023–24 fiscal year, making the nation acutely exposed to global supply chain disruptions. The Middle East conflict has rippled across shipping lanes, particularly the Red Sea corridor—a critical artery for East African energy logistics. Higher insurance premiums for vessels transiting volatile waters, combined with elevated crude benchmarks (Brent crude remained above $80/barrel through late 2024), create a perfect storm for import-dependent economies. Freight costs, which constitute 15–20% of Kenya's landed fuel cost, have surged roughly 35% year-on-year in some quarters, directly amplifying pressure on retail pump prices.

The ministry's G-to-G model attempts to circumvent middlemen and negotiate directly with oil-producing nations—primarily in the Gulf Cooperation Council (GCC). In theory, this reduces transaction costs and improves price predictability. However, critics argue the arrangement lacks transparency, potentially exposing Kenya to unfavourable terms and limiting competition among suppliers.

## What does this mean for Kenyan consumers and businesses?

The cumulative effect is stark. Kenya's fuel pump prices have remained stubbornly elevated, constraining household purchasing power and raising transport costs across the supply chain. Inflation pressures persist, particularly in food and logistics-dependent sectors. For investors, the opaque nature of G-to-G deals introduces regulatory and reputational risk; international partners increasingly scrutinize energy procurement frameworks for transparency and competitive bidding.

The Energy and Petroleum Regulatory Authority (EPRA) faces a delicate balancing act: stabilising retail prices while ensuring the Treasury's fiscal sustainability. Kenya's fuel subsidy programme—which has cost approximately KES 140 billion (USD 1.1 billion) over the past three years—remains a drag on public finances, limiting capital for infrastructure and healthcare investment.

## What are Kenya's medium-term options?

Diversification is critical. Kenya's nascent oil production (Tullow Oil's Lokichar Basin output remains modest) could gradually reduce import dependency by 2026–2027. Simultaneously, renewable energy expansion—solar and wind capacity additions targeted at 5 GW by 2027—could lower overall energy costs. The ministry should also consider regional pooling mechanisms with Ethiopia, Tanzania, and Uganda to aggregate import volumes and negotiate stronger terms with suppliers.

Transparency remains the fundamental issue. Publishing G-to-G contract terms, pricing benchmarks, and quarterly fuel cost breakdowns would restore investor and consumer confidence while enabling better policy decisions. Without it, Kenya risks prolonging the perception of opacity that undermines competitiveness and private sector investment.

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