Kenya turns to Iran for oil despite embargo

Kenya has turned to Iran — a country facing crippling economic sanctions from the West over its reported nuclear weapons ambition — to secure long-term fuel supply contracts.

The country is counting on separate bilateral pacts with Tehran, the third largest global supplier, and its neighbour the United Arab Emirates, another major global supplier, in deals meant to keep the commodity flowing into the economy.

The announcement comes as South Korea said it was discontinuing Iranian oil imports from this month after Western insurers stopped covering Tehran oil shipments.

The US congress is this month expected to expand sanctions against Iran while the European Union on Monday formally approved an embargo on Iranian oil to be enforced this July.

“We have signed a Memorandum of Understanding with Iran for supply of two products by the Iranian National Oil Company (Inoc). We are also trying Abu Dhabi National Oil Company (Adnoc),” said Energy permanent secretary Patrick Nyoike.

This will be the first time Kenya is officially seeking government-to-government fuel supply contracts.

The PS said while the pacts do not guarantee reduced prices, they will guarantee supply of gas and crude oil.

“We are looking at supplies for crude oil and gas condensates depending on the deal that comes first,” added Mr Nyoike on telephone.

National Oil Corporation of Kenya (Nock) Managing Director Sumayya Athmani-Hassan had, without specifying, told the Business Daily that supply negotiations with a leading global national oil company will be sealed this month.

“We are expected to sign in July 2012 the first-ever term contract between government to government, Nock and a producing national oil company for the supply of affordably priced products to Kenya,” said Ms Hassan.

Besides bilateral agreements, the government expects the cost of fuel products, under streamlined shipment of crude oil, to reduce substantially when the country’s refinery starts importing its own crude for processing.

Kenya’s refinery is from July 1 set to convert into a merchant arrangement where it procures its own crude, refines and sells it to local and international marketers.

At present, Kenya Petroleum Refineries Limited acts as a toll refinery, processing crude on behalf of oil marketers in exchange for a processing fee.

Murban is still the most economical crude oil sourced mainly from the Persian Gulf for the Kenyan market. Iranian crude oils have sulphur content and are, hence, cheaper.

Under the proposed Kenya-Iranian contract, Tehran could give an extended credit facility of 90 days, saving the country millions of shillings currently used to import expensive crude oil through overdraft facilities.