Kenya: Fears mount over US-Iran clash

Wednesday, January 8th, 2020 00:00 |
Turkana oil fields.

John Otini

The rising tension between US and Iran is troubling policy makers even as a surge in oil prices threaten to push the cost of living higher than expected.

Analysts warn that Iran and its sympathisers may target any country closely allied to the US, in a move they consider likely to force Kenya increase security spending to avert possible risks at a time when the country needs financial boost to spur economic growth.

Iran has vowed “harsh retaliation” for a US airstrike that killed its top general, Qassem Soleimani.

Kenya is already facing a security scare following unrelated terror attacks in parts of the country, meaning important sectors of the economy could feel the pinch further, especially with tourists expected to take precautionary measures as has been witnessed in the past.

“We could see tourism being affected because Iran may choose soft targets,” said International Trade don at the University of Nairobi, Gerishon Ikiara. 

The heightening tension between Washington and Tehran is also set to hurt tea earnings from Iran, industry players have warned.

Export of Kenya’s tea to Iran had already dropped to 532,715kg in 2019, down from 590,111 in 2018, significantly cutting the forex earnings.

Oil prices jumped five per cent to $70 a barrel after a US drone strike killed Soleimani. 

Iran holds 10 per cent of the world’s proven oil reserves and 15 per cent of its gas. Kenya gets her shipments from the middle East and a crisis in this region could also affect supply.

Interest rates

The new developments could stymie the economy which had started gaining buoyancy in the last quarter of 2019 helped by optimism surrounding the repeal of interest rates and the Sh85 billion supplementary budget to ease the austerity pain.

Oil prices are important because they affect the prices of agricultural and manufactured goods due to the transport and fertiliser components with a direct impact on the cost of living.

If the current international fuel prices hold, then Kenyans will see a rise in the February oil prices since there is normally a price lag stretching close to one month to allow shipment.

This means that fares will increase followed by a jump in prices of flour and many other basic items. 

Oil imports account for a third of Kenya’s total imports putting the country at risk of imported inflation. 

Early this week in Mombasa, shippers said it will be difficult to import cargo through Kenya’s new port in Lamu, where the first berth was set to be commissioned but has been put on hold for months on insecurity.  

The latest attack on Manda airbase, which is near the port, further complicates the issue.

Real threat

Former Kenya International Freight and Warehousing Association chair William Ojoyo agrees that re-emergence of al Shabaab poses a real threat to the future of Kenya’s new port which is supposed to open any time soon. “The government must assure importers and other port users will be safe, their cargo will be safe and ships docking at the facility will be safe,” he said.

Kenya Ports Authority managing director Daniel Manduku, however, insists commissioning of the first birth has been postponed on several occasions, the opening of the port will not be hampered by the security situation.

More on Trade and Industry