Uganda Expands Fuel Supply Chain, Engages Tanzania Amid Kenya Tensions

In a strategic move to diversify its fuel supply sources, the Uganda National Oil Company (Unoc) has initiated the sale of petroleum products to oil marketing companies (OMCs) in Tanzania and within its borders. This development follows a burgeoning rift with Kenya, traditionally Uganda's main fuel supplier, propelled by a controversial fuel import credit deal Kenya secured with Gulf oil giants.

Unoc's venture into the Tanzanian and Ugandan markets is in collaboration with Vitol Bahrain, marking a preliminary phase before formalizing a comprehensive five-year direct import agreement. This shift aims to mitigate the dependency on Kenyan OMCs, which has been a staple for decades but recently scrutinized for inflated fuel prices due to intermediary costs.

The move is not just a test of the waters but a calculated strategy to ensure market readiness for a broader scale operation under the Unoc-Vitol partnership. Vitol, a significant player in the global oil sector with interests in the Fujairah Refinery, UAE, lends considerable weight to this endeavor.

This pivot comes at a critical juncture as Kenya extends its government-backed fuel import scheme with Saudi Aramco, Abu Dhabi National Oil, and Emirates National Oil until December 2024, a move that has significant implications for the regional fuel supply dynamics.

Unoc's traditional focus on supplying state-owned entities is taking a turn towards engaging private OMCs, signaling a broader market approach. This expansion, however, faces challenges, notably the missed initial import target due to licensing hurdles in Kenya, underscoring the intricate regulatory landscape impacting regional fuel trade.

The unfolding scenario presents a nuanced shift in East Africa's energy supply chain, with potential ramifications for the Kenyan Pipeline Company's transit fuel revenues and the broader economic ties within the region. As Uganda charts a new course in its fuel supply strategy, the implications for local OMCs, regional trade dynamics, and consumer prices are closely watched.