Iran war drives oil prices up: Africa sees winners and losers

Eric Wainaina, a motorcycle taxi driver in Nairobi, Kenya, was already worried about shrinking income as the rainy season approached in March. But the war on Iran, which broke out on February 28, has made things much worse. Before the war, he usually drove up to 180 km per day; now he only dares to go 90 km because of higher fuel prices, and his monthly earnings have halved. "We can't work as much as before because fuel is too expensive," he told Al Jazeera.

Kenya is one of many African nations bearing the economic fallout from the US-Israel assault on Iran, as surging energy prices drive up costs for businesses across the continent. Diesel prices in Kenya have jumped 24% during the war, to around US$1.60 per litre, hitting households especially hard. Normally, Wainaina gets 20–30 passengers a day; now he sees fewer than 10. "Passengers can't afford to ride anymore. I had to raise fares because of fuel prices and the rainy season," he said. If the situation doesn't improve, he and his family may have to move to the countryside and live on land inherited from his grandfather.

According to Bloomberg, Kenya may seek a loan of up to US$600 million from the World Bank to shield its economy from global energy shocks, as its budget deficit and subsidy costs continue to rise.

The International Energy Agency (IEA) described the Iran war as the most severe oil supply shock in history. Goldman Sachs estimates that trade disruptions through the Strait of Hormuz and attacks on regional energy infrastructure have cut global oil output by 14.5 million barrels per day – a drop of 57%.

Africa's dependence on imports

Although Africa is one of the world's largest oil-producing regions, holding about 12% of global reserves, the continent still imports more than 70% of its refined fuel, according to the Africa Finance Corporation (AFC). This leaves many countries – especially those like Kenya with little or no domestic oil reserves – vulnerable to market swings. The AFC warns that Africa could face a 86-million-tonne fuel shortfall by 2040, highlighting the widening gap between local refining capacity and rising energy demand. Weak refining capacity remains a major challenge.

However, Amaka Anku, head of the Africa practice at the Eurasia Group, argues that Africa's energy difficulties are not unique. "When there's a global shock like this, it affects everyone. The media often has a narrow view that Africa will be hit hardest. But rising inflation is hurting us all. The supply chain shock in Asia is worse because of the region's heavy dependence on Gulf petroleum products," she stated.

Winners and losers

Nigeria, Africa's largest oil producer and exporter, stands to benefit from higher energy prices. US investment firm Vanguard reported last month that Nigerian oil companies have raked in a windfall of US$4 billion thanks to surging crude prices. The price of Nigeria's Bonny Light crude has risen 66% since the Iran war began, from about US$70.14 per barrel to an average of US$116.84. Other African countries may also benefit from increased demand for minerals. "Nigeria is seen as one of the winners. The Democratic Republic of Congo is also benefiting because it has critical minerals needed to replace US defense systems destroyed during the Iran war. Conflict creates unprecedented opportunities," Anku noted.

But she added that Kenya is "quite vulnerable" to the economic effects of the Middle East crisis, as its government was already under fiscal pressure ahead of next year's general elections, and that pressure is compounded by reliance on energy imports from the Gulf.

Alternative investment sources

Over the past decade, Gulf investment in Africa has surged, particularly in renewable energy. In February, the Clean Air Task Force reported that Saudi Arabia and the UAE had pledged US$175 billion in financing from 2010 to 2024, mainly for renewable power and hydrogen projects. China has also invested heavily in Africa's green energy sector and remains the largest investor in renewable energy on the continent.

Ebenezer Obadare, a senior Africa fellow at the Council on Foreign Relations (US), said that while the US-Israel war on Iran is causing financial strain for some countries, many maintain close ties with Washington for economic reasons. "A major shift by African countries to other international partners seems unlikely. Many have lobbied for an extension of the African Growth and Opportunity Act (AGOA) and are unlikely to sever ties just after it was reauthorized through December this year. Moreover, more countries are signing bilateral agreements with the US under the 'America First Global Health Strategy' framework, and they may be reluctant to put those agreements at risk. Overall, the pattern of broad engagement with the US is likely to continue in the near future, with the caveat that everything could change depending on the war's developments and duration," Obadare said.