The State dropped the fuel subsidy for the first time since August 2025 as prices of petrol and diesel rose Sh12.93 and Sh9.90 per litre, respectively in the wake of renewed conflict in the Middle East.
The subsidy withdrawals follow depletion of a kitty or the Petroleum Development Levy (PDL) Fund, which the State has used to ease costly petroleum.
The levy is funded by consumers who pay Sh5.40 per litre of diesel and petrol and Sh0.40 for every litre of kerosene to kitty.
But its heavy use in the wake of the war in Iran, which broke in February, has exhausted the kitty as the state sought to cushion consumers from costly fuel.
For example, the State applied a record high subsidy of Sh34.07 per litre of diesel to prevent prices of the commodity from rising in the monthly cycle to July 14, this year.
‘The decision we have taken today (removing subsidy) is meant to ensure that we save enough money for the future. Europe is going into winter and this will trigger a surge in demand for diesel and kerosene, and thus lead to a sharp rise in global prices of the two products,’ said Edward Kinyua, the Director General of the Energy and Petroleum Regulatory Authority (Epra) Wednesday evening.
‘The PDL kitty is under the National Treasury and it is on their advice and what we need for the future that we have taken this decision.’
A litre of diesel will retail at Sh227.85 from Sh217.86 in Nairobi, while petrol is up to Sh226.96 from Sh214.03 in Nairobi despite the State extending a reduction in Value Added Tax (VAT) on petroleum for another three months to mid-December.
The spike in pump prices reflects the impact of the renewed Middle East war that disrupted the global energy markets, pushing prices of refined fuel to the highest in over a decade last month.
Fuel prices have a big effect on inflation, which relies heavily on diesel for transport, power generation and agriculture, while kerosene is used in many households for cooking and lighting.
A litre of Kerosene rose by Sh28.49 to Sh219.87.
Costly fuel will spark fresh inflationary pressure given that farmers, goods producers and service providers factor the costs of fuel in the pricing of their goods and services.
Inflation-measure of cost of living- hit 6.8 percent last month which is the highest in recent times since the 6.9 percent recorded in January 2024.
Kenya in April cut VAT ?on petroleum products from 16 percent to 8 percent for three months, after crude oil prices surged because of the U.S.-Israeli war against Iran.
It has extended the lower VAT for the second time to cushion households and businesses from volatility in global energy prices.
Landed costs (cost of product plus transport costs) of refined fuel hit last month hit record highs in over a decade diesel jumped to $ per cubic metre setting the stage for steep pump prices locally.
The surge in prices of refined fuel underscore the impact of the renewed Middle East conflict that has seen global prices of Brent crude surge past the $100-per barrel mark since last month. The prices stood at $105.98 (Sh13,750.90) on Wednesday.
The US military destroyed multiple Iranian tankers last month following ballistic missile attacks by Iran’s Islamic Revolutionary Guard Corps (IRGC) against US Navy warships as the Middle East conflict escalated.
Iran had directed attacks at US allies in the Gulf region, targeting critical infrastructure such as oil refineries and pipelines. This has disrupted supplies leading to steep prices of refined fuel in the global markets.
The latest rise in local prices will be significantly felt in the coming days as service providers, farmers and manufacturers pass the increased cost of fuel to consumers.
Diesel is the main fuel powering the Kenyan economy and is used to power farm machinery, industries and public transport.