The fallout from two months of war in Iran has stopped the bear run at the Nairobi bourse, helped shrink Kenya’s foreign currency reserves and ushered in increases in cost of items from petrol to fertilisers and freight.
Disruptions to shipping routes linked to Iran have left millions of kilogrammes of tea stuck in warehouses in Mombasa, threatening export earnings and farmer incomes.
In just eight weeks – less time than it takes to finish a school term- the Kenyan economic outlook has been knocked sideways.
The World Bank has downgraded Kenya’s growth forecast to 4.4 percent from 4.9 percent for 2026, weakening the economy’s ability to generate jobs and pay higher salaries as inflation is expected to eat into workers’ earnings.
The worst economic pain will be felt in poor countries like Kenya, where consumers cannot afford higher energy prices, and governments cannot afford to provide aid or subsidies for prolonged periods to offset the costs.
And as financing tightens, the cost of desperately needed borrowing for these countries increases.
The loss of some 20 percent of the world’s energy supplies in the wake of the war, which has seen Iran’s attacks on Gulf energy infrastructure has already been called the ‘greatest global energy security threat in history’ by the International Energy Agency.
In the April-May fuel price review, Kenya raised petrol and diesel prices by Sh19.32 and Sh30.09, respectively, to Sh197.60 and Sh196.63, reflecting the impact of the higher global crude prices.
Besides higher pump prices, Kenya is also facing disruptions in remittances from the Middle East, impaired exports and imports to and from the region, and volatility for the shilling and the Nairobi Securities Exchange (NSE).
Kenya carries out trade worth Sh700 billion with the Gulf, while remittances from the region account for about 10 percent of the annual flows of $5.1 billion.
Kenya’s exposure to these global geopolitical shocks has now forced the Treasury to seek emergency funding of $300 million (Sh38.8 billion) from the World Bank to cushion the economy.
Food production will be damaged by fertiliser shortages, which will lead to further inflation on costly meals. Fertiliser costs have nearly doubled weeks into the war.
In the financial markets, the war has nudged the shilling into increased volatility.
In early April, the shilling slipped to the 130 level against the dollar for the first time since August 2024, but it has now regained some ground to trade at Sh129.27 to the greenback.
At the Nairobi bourse, investor wealth has grown 0.5 percent or Sh17 billion since the war began, compared to a growth of Sh453.5 billion or 15.3 billion in the first two months of the year.
The slower growth in March and April came despite the listing of Kenya Pipeline Company (KPC) on March 11, which added Sh166 billion in new value to the bourse.
Excluding KPC, the market dipped 4.4 percent.