The cry among Kenyans over soaring fuel prices will continue getting louder unless urgent measures are taken to ease the burden on the consumer.
While I empathise with them, the truth is that the global supply chain of fossil fuels has been affected due to several reasons. First, the prices of crude oil are going up because OPEC has restricted supply.
The ongoing Russia-Ukraine war has constrained oil supply, thus leading to high prices. In addition, the Northern Hemisphere is entering its winter season, which has hiked demand sharply. The current trends of oil prices on the regional and international markets have increased.
What are the short-term strategies/solutions for Kenya?
The government can increase initially introduced subsidies through the stabilisation fund to manage price shocks. While it spent Sh1.9 billion on the same as per the Treasury data, more is needed.
Doubling the allocation to Sh3.8 billion can ease the pressure for many Kenyans. This will stimulate the economy, thus enabling the government to collect more taxes.
Introducing government-to-government purchase arrangements with OPEC countries can soften the price increase.
The Kenyan government ought to approach OPEC countries and sign oil hedging contracts such as financial derivatives to stem oil price fluctuations in the long run.
While local oil marketers need to make money by selling to Kenyans, the government can negotiate with them to give Kenyans discounts at the pump.
Renegotiating prices under this arrangement to get a significant discount that can provide a cushion to Kenyans by at least Sh5 per litre.
They can still make profits by decreasing the margins and increasing the volume.
Kenya should start becoming climate conscious by embracing green energy instead of depending on fossil fuels.
Fuel is becoming expensive in the climate change era because it attracts carbon penalties. Kenya ought to start reducing overreliance on fossil fuels by adopting some of the green energy forms that do not rely on this kind of energy.
The final strategy Kenya can employ is the buildup of more strategic oil reserves. Kenya can stock reserves for a long time as opposed to buying fewer quantities that can be costly with the high price volatilities.
These reserves make it possible for OPEC to supply the market in the case of sharp price spikes that typically result from physical disruptions to supply, such as floods caused by potential El Nino rains and other unknown factors.
When used correctly, these strategies can be precious, but critics have chided politicians for attempting to use fuel prices for political purposes.
As long as we have limited control over fuel prices, the oil crisis in the global market will persist. Kenyan government ought to adopt some of these new policy changes to help them control energy prices to help many helpless Kenyans facing hard economic times experienced today.
The writer is a lecturer at Meru University of Science and Technology (MUST) and a Post-Doctoral Researcher at Umeå University.
X: @Dr_Jodhiambo
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