The Government-to-Government(G2G) oil agreement, between the Kenyan government and three Gulf state-owned companies, allowed Kenya to import oil on credit, delaying payments to international suppliers by six months.
Designed to alleviate dollar demand and strengthen the Kenyan shilling, the oil agreement has faced criticism for its role in retail price increases, irregular supplies, tax losses, and the devaluation of the Kenyan shilling.
The narrative of the G2G oil agreement and its influence on the FX market underscores the interdependence of oil prices and their consequential effects on foreign exchange markets.
Oil price fluctuations globally have wide-ranging effects. Decreases can lead to job losses and production cuts, while increases may result in inflationary pressures affecting currency values.
The price of oil in kenya has a significant impact on various aspects, including the cost of living and consumer purchasing power.
The G2G oil import agreement included the Kenyan government and three Gulf state-owned companies—Saudi Aramco, Abu Dhabi National Oil Company (ADNOC), and Emirates National Oil Company (ENOC).
Kenya decided to exit the G2G oil import deal to pursue its strategic goal of becoming a major player in the oil and gas industry, leveraging significant petrol and oil reserves for domestic production and refining.
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Global changes in oil market dynamics, particularly a drop in crude oil prices, have made it more cost-effective for Kenya to import oil from other countries, thereby reducing the viability of its planned oil pipeline.
Additionally, the G2G oil deal, initially designed to manage the demand for dollars and sustain the Kenyan shilling, has been partly blamed for contributing to a surge in retail prices.
Exiting the G2G oil deal may result in economic challenges, including potential disruptions in oil supply and the necessity to secure alternative arrangements for the country’s energy needs.
Furthermore, terminating the G2G oil deal enables Kenya to diversify its imports by renegotiating with the UAE and Saudi Arabia and considering a shift toward private market solutions.
The notable impact of oil prices on currency exchange rates is crucial for both oil-exporting and oil-importing nations, influenced by factors like trade balance and market psychology.
Policymakers and investors recognize this correlation’s importance due to its profound effects on the global economy, trade, and currency exchange rates.
The deal, meant to stabilize the FX market, ended, causing higher fuel prices in Kenya that directly impacted consumers.
The resulting increase in retail prices and potential inflationary pressures affect the cost of living and consumer purchasing power.
The departure from the G2G oil deal requires the oil industry to adapt, with companies needing to navigate changing market conditions.
This involves reevaluating supply arrangements, considering alternative import models, and addressing potential disruptions in the energy supply chain.
The decision’s sector-wide implications include its effects on exploration and production activities.
Additionally, exiting the G2G deal may influence investment decisions, resource development models, and the overall landscape of oil in kenya, gas exploration and production in the country.
Kenya’s choice to withdraw from the G2G oil deal has the potential to alter investment trends in the petrol and oil industry.
This includes potential shifts in resource development strategies, and the overall structure of the oil and fuel sector as the country transitions away from the G2G arrangement.
Gasoline prices have fluctuated since May 2008 and a low of 0.40 USD/Liter at some point in the past. Later on the price of the fuel decreased to 1.37 USD/Liter from 1.42 USD/Liter in November.
As of January 14, 2024, gasoline is priced at Sh207.36, and diesel is priced at Sh196.47 in Nairobi, Kenya.
