Iran-Israel-US Conflict Puts Kenyan Shilling Under Pressure

As of March 3, 2026, the escalating conflict involving Iran, Israel, and the United States has shifted from distant tension to direct economic risk for Kenya.

Analysts now warn that over Sh700 billion in Gulf trade faces disruption. Consequently, the Kenyan Shilling (KES) is experiencing renewed depreciation pressure.

Energy Shock Drives Dollar Demand
Strait of Hormuz Risk

Approximately 20 percent of global oil passes through the Strait of Hormuz. Iran has repeatedly threatened to block this strategic corridor.

If disruptions occur, global crude prices spike immediately. Brent crude has already climbed toward $80 per barrel. Projections suggest prices could reach $100 if hostilities persist.

Kenya’s Oil Import Burden

Kenya remains a net oil importer. Therefore, it must spend more US dollars to secure fuel supplies. This surge in dollar demand drains foreign exchange reserves. As a result, the shilling weakens against the dollar.

Geopolitical instability typically triggers investor caution. Investors move capital from emerging markets into safe-haven assets.

In this case, demand for the US dollar rises globally. Consequently, emerging currencies like the Kenyan Shilling face downward pressure. Moreover, reduced capital inflows tighten liquidity in local financial markets.

Remittance Decline Adds Further Strain

Diaspora remittances reached $5.04 billion in 2025. They remain Kenya’s largest source of foreign exchange.

However, instability in Gulf nations threatens this inflow. Remittances from Saudi Arabia and the United Arab Emirates have already declined in early 2026. If job losses increase, inflows could fall further. Consequently, the supply of dollars entering Kenya would shrink significantly.

Trade Disruptions Hit Tea and Shipping

Iran ranks among Kenya’s top tea markets. The tea trade with Iran is valued at Sh4.26 billion. However, sanctions and conflict complicate payments and logistics. Exporters now face higher freight and insurance premiums.

Shipping routes through the Red Sea carry added war-risk surcharges. Therefore, exporters must pay more in dollars, increasing foreign exchange demand.

Inflation and Interest Rate Pressure

Higher fuel costs quickly filter into transport, electricity, and food prices. As a result, households face rising living costs. The Central Bank of Kenya may pause planned interest rate cuts. The benchmark rate currently stands at 8.75 percent.

If imported inflation accelerates, policymakers may tighten monetary policy. However, higher rates could slow economic growth.

2026 Economic Outlook

The Ministry of Energy has assured Kenyans that fuel stocks remain stable through April 2026. Nevertheless, risks remain elevated. If the Strait of Hormuz disruption extends beyond two months, Kenya could face a triple shock.

That shock includes currency depreciation, rising inflation, and a widening trade deficit. Ultimately, the Iran-Israel-US conflict now poses a direct and immediate threat to Kenya’s economic stability.