East Africa is beginning to feel the impact of global politics as Kenya and Tanzania stop importing oil and gas from Iran in the face of United States sanctions against countries that continue to trade with Tehran.
US President Donald Trump in May reintroduced sanctions against Iran in a bid to force the country to abandon its nuclear programme, pulling out of a 2015 deal signed by the previous administration of President Barack Obama.
Under the deal with the US, United Kingdom, France, China, Russia and Germany, Iran agreed to limit its sensitive nuclear activities and allow in international inspectors in return for the lifting of economic sanctions against it.
The US president has warned that he will push for sanctions against countries or companies that continue to trade with Iran.
“The new sanctions relate to the purchase of petroleum products, which covers products obtained from the processing of: Crude oil (including lease condensate), natural gas, and other hydrocarbon compounds,” the US Treasury said in its updated fact sheet on the Iran sanctions.
Standard and Poor’s Global, the New York-based financial information and analytics firm, reports in its latest analysis that Kenya and Tanzania have stopped imports from Iran.
While noting that Tehran's liquefied petroleum gas exports in August were at their highest in more than two years at close to 600,000 tonnes, with the bulk going to China, it adds that “customers like Kenya and Tanzania, which used to buy LPG from Iran, have stopped imports due to the upcoming sanctions.”
The report adds that Kenya emerged as a consistent buyer of Iran's LPG since early 2016, but imports have stopped since July, “according to tracking data.”
But the pain of stopping trade with Iran will be two-way as East African countries that export tea to Iran — which accounts 20 per cent of their market — will have to seek alternative markets.
Latest data from the Kenya National Bureau of Statistics shows that Nairobi’s imports of oil from Iran rose in the first six months of this year to hit $72 million, compared with $50 million over the same period last year.
Kenya also sold more than $280 million worth of tea exports to Tehran and this is now set to be affected by the additional sanctions next month.
On Wednesday, while addressing world leaders during the United Nations General Assembly, President Trump said the US would go for additional sanctions against Tehran.
“We will be having additional sanctions on November 5, with more to follow after that. Right now, we are working with countries that import Iranian crude oil to cut their purchases substantially. Anyone doing business with Iran will not be doing business with the United States,” President Trump said.
It is understood that Kenya and Tanzania pulled the plug on importation of Liquefied Petroleum Gas from Tehran in July this year, after being among its biggest customers, due to international pressure.
“Kenya stopped in July ahead of the planned visit by President Uhuru Kenyatta to Washington in August. As it was, the country wasn’t purchasing the product directly from Tehran but through third party services from Singapore, Dubai, and Fujairah ports,” The EastAfrican was told.
Kenya and Tanzania also lead the region as big importers of bitumen from Iran, with 60 per cent of the product being used in Kenya coming from Tehran.
Other products the region imports from Iran are industrial oils, urea, paraffin and fermented black tea. Kenya also boasts of more than 37 Iranian firms.
Nairobi’s move comes barely two months after Kenya's Foreign Affairs Cabinet Secretary Monica Juma played down US threats of sanctions over trading with Iran. “We have our own interests and will not take instructions from anyone on whom to trade with,” she said.
A source told The EastAfrican that “Tehran had been offering Kenyan traders an extended credit facility of 90 days, which Nairobi had found to be attractive. This explains the rise of the oil and gas imports from Iran.” In comparison, Kenya’s purchase of US oil stood at $6.89 million.
The exit of Iran as a source market for Kenya and Tanzania’s oil products now leaves Jordan as the third source of this products, selling $10.2 million in the first quarter of this year to Nairobi, behind Saudi Arabia at $365.9 million and the United Arab Emirates at $338.9 million.
Iran had become Nairobi’s third largest supplier of oil products, peaking at $100 million last year.
Rwanda, Tanzania, Uganda and Burundi also have Iran as a key market for their tea.
The region had been targeting to increase its tea shipments to Iran to 20,000 tonnes by the end of next year, from a low of 3,200 tonnes when the last sanctions were lifted in 2016. Iran is currently fifth biggest tea-consumer, with its consumption estimated at 88,000 tonnes last year worth $350 million, according to the latest figures from the Food and Agriculture Organisation. Kenya’s tea exports last year stood at $1.4 billion, with 20 per cent or $280 million heading to Iran.
In May, the Agriculture and Food Authority (AFA) warned that the new sanctions would affect Kenya’s tea exports to Tehran given the difficulty traders will face in effecting payments and fulfilling financial transactions with Iranian buyers, for fear of the said sanctions.
“As it is, we may not be able to export tea to that market because of the sanctions,” said AFA director-general Alfred Busolo.
It will also be interesting to watch the response of the European Union given that Kenyan traders are now banking on payments in euro to still trade with their Iranian counterparts because the EU has said it will respect the 2016 deal.
The lifting of the ban in 2016 allowed Kenyan banks to start transacting with Iranian banks, which helped ease the flow of funds for Kenyan tea traders, but this has now been hobbled by the latest sanctions, which could worsen the situation as Kenyan banks will fear being blacklisted.
The East African Tea Traders Association managing director Edward Mudibo asked regional governments to intervene so that tea exports to Iran are not affected.
“Iran is a big market for the tea coming out of the region and we would want to engage with governments so that we can see the options available in the wake of these sanctions because we do not want to lose out on this market,” Mr Mudibo said.
However, Kenyan exports to Iran dropped from $5.79 million in the first three months of the year to $3.49 million in the three months to June this year, data from Kenya National Bureau of Statistics shows.