The streets of Nairobi are burning. Kenyan protests over fuel prices have escalated into a national crisis, with the government deploying the military to restore order. The trigger: a 20% hike in petrol prices following the removal of subsidies, a move necessitated by a collapsing currency and soaring import costs. For observers in the City, this is a grim case study in the perils of energy dependency, and a validation of the UK’s own pivot towards domestic energy security.
The immediate cause is simple maths. Kenya imports nearly all its refined petroleum, paying in dollars. The shilling has lost a third of its value against the greenback in the past year, while global oil prices remain stubbornly high. The government, boxed in by IMF conditions and a widening budget deficit, had little choice but to pass on costs to consumers. The result: inflation running at 9%, a cost-of-living crisis, and now civil unrest.
But the deeper lesson is for energy importers everywhere. The UK, too, faced a similar reckoning in 2022 when Russia’s invasion of Ukraine sent energy bills into the stratosphere. The government’s response was a combination of fiscal support and a renewed push for domestic production, including North Sea oil and gas licences and a massive expansion of renewables. Critics called it a sop to the fossil fuel lobby. But events in Kenya suggest otherwise. The UK, by diversifying its energy mix and shoring up domestic supply, has insulated itself from the worst of the global price shocks. The latest CPI print showed UK inflation at 6.8%, still high but falling. It could have been much worse.
The contrast is stark. Kenya has no such buffer. Its economy is at the mercy of global markets and currency fluctuations. The shilling’s slide accelerates capital flight, forcing the central bank to hike rates, which crushes investment and growth. It is a vicious cycle familiar to emerging markets. The UK, as a mature economy with a floating exchange rate and deep capital markets, has more tools. But the direction of travel should be clear: energy independence is not an ideological luxury, it is a hard-nosed fiscal imperative.
Market volatility is now the watchword for Kenya. The Nairobi Stock Exchange has shed 15% this year. Bond yields are spiking as investors demand a risk premium. The country’s foreign reserves cover barely four months of imports. This is the sort of scenario that keeps finance ministries awake at night. And it underscores why the UK Treasury, despite its own fiscal struggles, has been right to prioritise energy security. The windfall tax on oil and gas giants may be populist, but the accompanying investment allowances have kept the rigs drilling. The result is that the UK is less exposed to the kind of price spikes that have brought Kenya to its knees.
Of course, the UK is not immune to global forces. The Bank of England is still grappling with the aftermath of its own inflation surge. But the trajectory is improving. The UK’s energy strategy, while imperfect, has provided a cushion. The government’s fiscal hawks should take note: a pound spent on domestic energy production is a pound saved in future social costs. The alternative, as Kenya shows, is far more expensive.
The protests in Nairobi are a warning to every government that has neglected energy resilience. The City will be watching carefully. For investors, the lesson is clear: diversify your energy sources or pay the price. And for policymakers, the message is equally blunt: fiscal responsibility begins with energy independence. The bottom line, as always, is the bottom line.
