Why continued war in Yemen could mean more pain at the pump in Kenya

58

Brace yourself for a spike in the price of petroleum products, and by extension, higher inflation in coming months.

The weekend coordinated drone attack by Iran-backed Houthi rebels on key Saudi Arabia oilfields, which immediately knocked off half of the leading world oil supplier’s daily output, has disrupted global supply and sent jitters across markets.

In early morning trade on Monday, the price of a barrel of crude oil jumped more than 10% to $67.31 (Ksh.6, 900) from $60 on Friday, partly on account of a knee-jerk reaction from traders to the shock attacks and the many unknowns still surrounding the scale of the damage – and some analysts believe it could spike up to $80 in coming days.

A barrel of crude oil yields about 159 litres of the refined commodity.
Saudi Arabia, the world’s largest oil producer, accounts for 10% of total global supply – meaning the drone attacks knocked 5% of that offline.

It is also the third biggest spender on defence after the USA and China, making many analysts to question how it failed to detect and forestall the attacks on its key oil infrastructure, which has left the world more vulnerable, as the five year-old war in Yemen pitting the Houthi rebels against a Saudi-UAE coalition, rages on.

Now, although Kenya has recently joined the league of oil producing nations, it still wholly depends on oil imports as it lacks the capacity to refine its crude and in any case, commercial oil exports are not expected to commence until, at the earliest, 2024.

This means a spike in crude costs on the international stage is likely to result in higher pump prices locally in coming months, unless Saudi Arabia quickly restores the lost oil supply and other interventionist measures, such as President Donald Trump’s authorization of a release of US crude reserves into the supply chain on a need-to basis, help shore up global supply.

Higher oil prices, more often than not, will mean an increase in inflation as manufacturers, for whom oil is a major input, pass down added costs to consumers by way of increased product prices.
In August, the rate of inflation rose marginally to 5.4%, from July’s 5.32% the preceding month.

In the latest maximum retail oil prices released by the Energy and Petroleum Regulatory Authority (EPRA), a litre of kerosene dropped by Ksh 3.31 but super and diesel rose by 28 cents and Ksh 2.44 respectively, as a new inflation – adjusted excise duty slapped on fuel products in July and a slight depreciation in the value of the Kenya shilling more than wiped out benefits accruing from a 5.82% reduction in crude oil prices.

Diesel is a key input in manufacturing plants and often powers commercial vehicles used in transportation, and as such, any price surge is likely to exert more pressure on inflation.

LEAVE A REPLY

Please enter your comment!
Please enter your name here