Global oil markets just had one of their sharpest moves in months. Brent crude touched $100 a barrel on July 23, after Iran-backed Houthi rebels claimed missile and drone strikes on two Saudi Arabian oil tankers in the Red Sea a new front in a Middle East war that has been simmering, and periodically exploding, since early 2026. For most of the world this is a headline about markets. For Kenya, it’s a direct hit to household budgets, business costs, and government finances, because Kenya imports 100% of the refined fuel it consumes.
Here’s what happened, why Kenya feels it more than almost anywhere else, what the government is doing about it, and what’s changed in just the last 24 hours.
The spark: a new front opens in the Red Sea
On July 22–23, Yemen’s Houthi rebels announced a blockade of Saudi ports and then claimed to have struck two Saudi tankers in the Red Sea to enforce it. Brent crude jumped more than 6–7% in response, closing around $100.69 a barrel and touching $102 intraday — its highest level in about two months. U.S. crude (WTI) rallied alongside it, closing near $92.
President Trump responded by threatening the Houthis with “major military punishment,” while Iran said it would keep striking the Gulf region for as long as it remained under U.S. attack. Markets read this as a serious escalation risk: Saudi Arabia had been rerouting oil exports through Red Sea terminals like Yanbu specifically to work around earlier disruptions to the Strait of Hormuz, so an attack that threatens the Red Sea route as well removes one of the last safe channels for Gulf oil to reach world markets.
This isn’t a new war it’s the same US-Iran conflict that first pushed oil above $100 back in February/March 2026, now opening a second chokepoint. Global equities wobbled on the news too, with tech stocks leading a broader sell-off.
Why Kenya is unusually exposed
Kenya produces none of its own refined petroleum. Every litre of petrol, diesel, and kerosene sold in the country is imported, priced in US dollars against international benchmarks, then converted into shillings for the local pump price. That structure means three things move Kenya’s fuel prices in lockstep:
- Global crude prices — when Brent or Kenya’s actual import benchmark rises, landed costs rise immediately
- The shilling-dollar exchange rate — a weaker shilling amplifies the dollar cost before a single tax is added
- Government taxes and levies — VAT, the Road Maintenance Levy, and the Petroleum Development Levy, which can either add to or subtract from the final price depending on policy
There is essentially no buffer. When a Middle East shock hits, it shows up in Kenyan pump prices within one or two EPRA pricing cycles.
Kenya has already lived through this once in 2026
This week’s escalation is landing on ground that’s already scorched. When the original Iran war escalation hit in February–March 2026, the pass-through to Kenya was brutal:
- Landed diesel costs rose nearly 69% in a single month, from about $636 to $1,074 per cubic metre
- Kerosene landed costs more than doubled
- Petrol landed costs rose over 41%
- Oil marketers had projected petrol could rise by up to KSh 37 a litre and diesel by KSh 70 a litre before government intervention softened the blow
- Kenya’s strategic reserves fell below the regulatory minimum — just 16 days of petrol and 19 days of diesel against a 21-day requirement
The government responded with an emergency package: cutting VAT on fuel from 16% down to 8%, and pulling billions of shillings from the Petroleum Development Levy (PDL) fund to hold pump prices down. It worked, but it wasn’t free and that bill has kept growing all year.
What the government has actually been doing
Wandayi’s playbook for 2026 has been consistent every time a shock hits:
Tax relief. The government has kept VAT on petroleum products at a reduced 8% (instead of the standard 16%) through multiple extensions, most recently pushed out to October 14, 2026.
Direct subsidies from the PDL fund. Every pricing cycle this year has seen a draw from the Petroleum Development Levy to keep pump prices from rising as fast as landed costs. In the July 15–August 14 cycle alone, that was a KSh 945 million injection.
The Gulf supply deal. A government-to-government arrangement with Saudi/Gulf oil suppliers has been used to reduce reliance on the open spot market and ease pressure on the shilling, though fuel imported outside that deal has reportedly cost up to three times more per tonne.
Public reassurance. Wandayi has repeatedly told Kenyans that supply is secure and stocks are adequate, even while acknowledging that international benchmarks are climbing again.
As recently as mid-June, Wandayi was actually optimistic pointing to a US-Iran peace agreement and predicting fuel prices could fall further from August, as the Strait of Hormuz reopened to traffic. That call now looks premature.
The number that should worry Kenyans most: the subsidy fund is running dry
This is the critical update. Kenya’s actual crude benchmark Murban, not Brent surged more than 22% to above $112 a barrel (roughly KSh 14,500) on July 23, a much sharper jump than the Brent headline suggests. At the same time, reporting indicates the Petroleum Development Levy kitty is nearly depleted, after the government has already spent more than KSh 20 billion on fuel subsidies since April.
That combination a sharp new cost shock arriving just as the shock absorber runs empty is a materially worse setup than what Kenya faced going into the July 15 review, when EPRA was still able to hold pump prices flat. Economic forecasts published just before this week’s escalation (NCBA’s mid-year outlook, for instance) had assumed Brent easing toward $70 a barrel in the third quarter and inflation cooling toward 6%. Those assumptions now need revisiting.
What to watch next
- The August 15, 2026 EPRA review — this is the first pricing cycle that will fully reflect cargoes landed during the current spike. Given the depleted subsidy fund, this is the most likely point where Kenyans actually see a pump price increase rather than another absorbed shock.
- The shilling — it had been strengthening on the back of falling oil prices earlier this year, drawing in bond investors. A sustained new spike threatens to reverse that, again raising the dollar cost of every litre imported.
- Inflation — fuel is a direct driver of transport and food costs in Kenya; any pass-through at the pump will show up in the CPI within a month or two.
- Whether this stays a Red Sea problem — the bigger risk is if this escalates into a full re-closure of the Strait of Hormuz, which carries a far larger share of global crude than the Red Sea route currently affected.
The bottom line
Kenya doesn’t set the price of oil, and it doesn’t refine its own fuel it simply absorbs whatever the Middle East delivers, with a short lag. The government has a real, tested toolkit (VAT cuts, PDL subsidies, the Gulf import deal) for cushioning these shocks, and it has used that toolkit aggressively all year. But tools cost money, and the fund behind them is now reportedly close to empty at the exact moment a fresh escalation is pushing Kenya’s actual import costs up more than 20%. The next month will show whether the government can once again absorb the hit or whether, this time, it has to pass it on.
