How Russia-Ukraine tensions keep fuel price high in Uganda
A fuel price display board at Shell fuel station in Kibuli, Kampala, on February 17, 2022. PHOTO / ABUBAKER LUBOWA
What you need to know:
- Analysts and observers of these developments argue that the Russia’s moves and the response from Ukraine and her Nato allies will trigger a confrontation and that has dynamics in the sourcing of crude imports into East Africa.
- All east African countries are net importers, and Uganda imports most of its oil products from Kenya where crude from the producing countries is shipped and refined
Border tensions involving faraway countries Russia and Ukraine are sending oil market shocks Uganda, with fuel prices at the pump remaining stubbornly high, and likely to trigger similar hikes in other East African countries. This shows just how connected the globe is.
In a televised address on Monday, Russian president Vladimir Putin recognised eastern Ukraine’s Donetsk and Luhansk provinces as “independent”, prompting condemnation from Western countries, which called for new sanctions against Moscow.
Russia’s demands have been to ensure that negotiations that will assure Moscow that the North Atlantic Treaty Organisation (NATO) does not expand and recruit Ukraine as a new member.
But hours after his speech, Putin instructed his ministry of defence to send troops into the two Ukrainian breakaway regions, an act that NATO Secretary General Jens Stoltenberg described as “fuelling conflict” and “trying to stage a pretext to invade Ukraine.”
The tensions which have gone on for months, are causing ripples in Uganda, which is yet to recover from a fuel crisis that hit the country seven weeks ago as it emerges that shortages of petroleum products and high prices at the pump may persist for a longer spell on the back of international oil prices that continue to soar.
Analysts and observers of these developments argue that the Russia’s moves and the response from Ukraine and her Nato allies will trigger a confrontation and that has dynamics in the sourcing of crude imports into East Africa.
“It will disturb the flow of fuel, our imports and exports will be hurt,” said Paul Kurgat, a former Kenyan Ambassador to Russia, now Deputy Head of Mission to Malaysia, explaining how a breakout of conflict could hurt the eastern Africa region.
All east African countries are net importers, and Uganda imports most of its oil products from Kenya where crude from the producing countries is shipped and refined.
In January, motorists in Uganda saw a 50 percent fuel price surge, with a litre of petrol reaching Ush12,000 in some towns, but on average the price was Ush6,620, a jump from Ush4,490 before.
The price surge was a result of the gridlock created at the Uganda-Kenya Malaba border post, where truck drivers that were enroute to Uganda parked their vehicles for weeks in protest against the $30 Covid-19 mandatory test imposed by the Ministry of Health.
But even after the border crisis was resolved, motorists continue to be turned away at fuel stations that run out of petrol and diesel.
Two weeks ago, market leaders Vivo Energy, which distributes Shell branded fuels, oils and lubricants, and TotalEnergies announced increases in pump prices, a move that other players have also followed, defying a directive of the Ministry of Energy issued last month, that a litre of fuel should not cost more than Ush5,000.
“The price has not come down to the expectation of citizens because as it was being fixed, international prices went up,” explains Rev Frank Tukwasibwe, the Commissioner for Petroleum Supply in Uganda’s Ministry of Energy.
“Even diesel which had remained low, went up. The scarcity now is because of forces beyond our control,” he added.
Unlike Uganda where oil marketing companies (OMCs) operate in a fully liberalised market and set their own prices, other East African countries regulate the industry and set fuel prices for dealers to charge motorists.
In the short term, the rising crude prices as a result of the Russia-Ukraine row, will hurt Uganda more than its other East African neighbours.
Kenya, for instance, whose Energy and Petroleum Regularity Authority (EPRA) sets the fuel prices, on February 14 issued a notice that maintained unchanged pump prices for four months in a row.
Boniface Kipchirchir, the Head of Operations at Stabex International Uganda, explains how the Russia-Ukraine tensions have brought price shocks in the market. In December, Russia issued a number of demands to be met to lower tensions in Europe, prompting a spike in oil prices.
Because of this, Platts – the price benchmark for the oil industry – rose from an average of $648 per metric tonne of crude in December 2021 to $820 per metric tonne in February, which translates into an increase by over Ush600 per litre, Mr Kipchirchir explains, warning that price increases are not about to stop.
Indeed, last week, the Russia-Ukraine row sent international crude prices soaring to nearly $100 a barrel, up from below $80 at the start of this year, and analysts predict that the price will soon hit $120 if Vladimir Putin gives his forces the order to invade Ukraine.
“Russia is the major supplier of the Far East countries such as China, New Zealand and Australia among others,” says Mr Kipchirchir, of oil products dealer Stabex International Uganda, one of the fastest rising oil marketing companies.
The Middle East and Gulf countries, where East Africa sources its crude from, will be tempted to explore supply markets in Asia and the Far East that will be potentially be vacated by Russia, in a war scenario, industry players say.
“The war is an opportunity for Saudi Arabia and other potential suppliers. Thus this increase in demand due to the crisis will affect East Africa and Africa, thus we expect the speculation to cause price increases,” Mr Kipchirchir argues.
Already Vivo Energy, which capped the price at Ush5,000 for petrol and Ush4,200 ($1.05) for diesel for the three-week duration of the border clogging in January, issued a price increase two weeks ago for all its Shell fuel stations to raise pump price by Ush80 (0.02 US cents) and Ush60 for petrol and diesel respectively.
On Monday February 21, Vivo Energy again increased the price for diesel to Ush4,330.
Uganda is a net importer of petroleum products with an average current daily consumption of 6.5 million litres, according to Ministry of Energy figures.
Fuel prices in EAC
Uganda
Ush5,090 petrol, Ush4,440 diesel
Kenya
Ksh129.72 petrol, Ksh110.6 diesel (Nairobi) against actual price of 144.25 and 133.89*
Ksh127.46 petrol, Ksh108.36 diesel (Mombasa)
Ksh129.24 petrol, Ksh110.43 diesel (Nakuru)
Ksh130.12 petrol, Ksh111.3 diesel (Kisumu)
Tanzania
Tsh2,480 petrol, Tsh2,338 diesel
Rwanda
RwF1,225, petrol, RwF1,140 diesel
Additional Reporting by Aggrey Mutambo
