Home Analysis Has The Israel-Hamas War Affected Kenya’s Economy?

Has The Israel-Hamas War Affected Kenya’s Economy?

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According to the Kenyan government the war between the Israel and the Palestinian group Hamas has affected many sectors.

The war has hit Kenya with fresh economic pain as oil prices rise on concerns of a destabilized middle and the potential straightening of the dollar against the Kenyan shilling as all the investors run to the safe haven ot the United States economy.

The conflict which broke out has threatened to draw in more factors from the middle east which is the main source of Kenya’s fuel imports as well as the key export destination of food and animal products.

It said that the Israel-Hamas conflict has raised the prices of oil just as the Russia- Ukraine war did. The players in this conflict, directly or indirectly are oil producers and they use oil as a bargaining chip and that’s why there has been skyrocketing prices of fuel for Kenyans.

A rise in crude prices is set to pile upward pressure on pump prices in Kenya.The cost of fuel impacts heavily on inflation due to the movement of goods and services.

In the currency market, the dollar tends to gain against other currencies in times of crisis, since it is seen as a safe haven against inflation alongside precious metals such as gold.

Locally, a further weakening of the shilling against the dollar carries serious inflationary risk due to the country’s position as a net importer. In the past 12 months, the shilling has depreciated, to exchange at 153.90 units as per the official rate published by the Central Bank of Kenya (CBK).

Such turmoil also leads to investors seeking ‘safety’ in the dollar leading to its appreciation; and depreciation of our currency. A further rise in inflation is expected, given we are net importers and need dollars.

The conflict also risks disrupting trade with countries in the wider Middle East,the trade balance with the region is heavily skewed against Kenya, mainly due to petroleum purchases.

Any disruption to trade, likely accompanied by higher prices, would, therefore, force Kenya to fork out more, or incur the additional expense and effort of sourcing for other source markets.

For the financial markets, outflows of capital from frontier markets such as Kenya have tended to accelerate whenever there is a global crisis.

Inflationary pressure in the US and EU, which deepened after the Russia-Ukraine conflict started, has seen major central banks in these economies raise interest rates to between 4.0 and 5.25 percent, making them more attractive to investors compared to riskier, smaller markets.

This also affects the government when it is seeking to borrow from external commercial lenders, due to the elevated cost of living.

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