Global diesel squeeze adds pressure on Uganda’s fuel prices

Uganda’s fuel consumers could remain exposed to high pump prices despite assurances that the country has sufficient petroleum stocks, as global diesel supply disruptions compound the effects of a weaker Shilling and higher domestic taxes.

The International Energy Agency (IEA) is urging member governments to accelerate emergency oil stock releases, prioritising diesel where possible, following disruptions in the Strait of Hormuz and reduced Russian supplies linked to Ukrainian attacks on oil refineries.

The warning comes as Uganda grapples with rising fuel prices, with Energy Minister Monica Musenero telling Parliament last week that international petroleum prices, exchange-rate movements and increased excise duty were driving up costs.

The developments highlight the pressures facing a country that imports refined petroleum products and remains exposed to changes in international markets, foreign exchange rates and transportation costs.

Although the government says existing stocks are sufficient to meet national demand, consumers remain vulnerable to price increases because adequate supply does not necessarily translate into affordable fuel.

Global diesel market tightens

At a meeting on Sunday, the IEA urged member governments to consider additional measures to accelerate emergency oil stock releases, with diesel given priority where possible.

IEA Executive Director Fatih Birol said member governments supported speeding up the releases in response to mounting pressure on global petroleum markets.

The agency said disruptions affecting oil flows through the Strait of Hormuz, combined with declining Russian supplies following attacks on refineries, had created exceptionally tight conditions in diesel markets in recent weeks.

Mr Birol had written to member governments urging them to consider measures to expand and accelerate the releases under a collective action launched in March 2026.

According to the agency, about 325 million barrels of oil had been released under the initiative by the time of the meeting, with some countries having released more than they initially pledged.

Releasing the remaining pledged stocks would bring approximately 100 million additional barrels to the market.

Member governments also hold substantial public emergency reserves, estimated at about 1.1 billion barrels, including more than 200 million barrels of diesel.

The IEA said governments reaffirmed their commitment to completing the March collective action and called for continued monitoring of progress and regular market analysis.

Emergency stock releases are intended to ease supply pressures, but their effect on pump prices in importing countries will depend on international market conditions, shipping costs, exchange rates and domestic pricing factors.

Why Ugandan fuel prices are rising

Ms Musenero told Parliament that the increase in domestic fuel prices could not be attributed to the Middle East crisis alone.

She said the Shilling had weakened from approximately Shs3,790 against the US dollar at the beginning of September to about Shs4,035 by October 5, increasing the cost of importing petroleum products.

The minister estimated that the exchange-rate movement alone had added about Shs300 per litre to fuel costs.

Because petroleum imports are paid for in foreign currency or through arrangements linked to international currency markets, importers need more Shillings to purchase the same quantity of fuel when the local currency depreciates.

The pressure has been compounded by the Excise Duty (Amendment) Act, 2026, which introduced an additional Shs200 per litre in excise duty on petrol and diesel from July 1.

The combination of international prices, currency depreciation and higher taxes has increased the cost pressures facing oil marketing companies and consumers.

Ms Musenero said pump prices are also influenced by procurement arrangements, transportation and logistics, financing expenses and the commercial margins of individual oil marketing companies.

This means that even if international diesel prices stabilise, domestic prices may remain elevated if the Shilling continues to weaken or other import-related costs remain high.

Similarly, an improvement in the exchange rate would not necessarily produce immediate pump-price reductions if international prices and other costs remain elevated.

Government seeks to secure supplies

Despite the international disruptions and rising prices, Ms Musenero said Uganda’s existing fuel stocks were sufficient to meet national demand.

She said the government was working through the Uganda National Oil Company (UNOC) and its supply partners to maintain supplies amid uncertainty in international markets.

The government is also pursuing alternative supply arrangements through Tanzania while engaging Kenya on a proposed Product Sharing Exchange Framework.

Other measures under consideration include a refined-products pipeline and storage facilities at Tanga, as well as improvements to logistics along the Mombasa and Dar es Salaam supply corridors.

Uganda is also pursuing investments in inland petroleum storage, including plans to expand capacity at Jinja and develop a larger storage and distribution terminal in the Kampala area.

The measures are intended to strengthen supply security, improve distribution and reduce the costs associated with transporting imported petroleum products to consumers across the country.

However, their ability to shield consumers from international price movements will depend on how effectively the arrangements reduce procurement, transport and storage costs.

MPs demand answers on UNOC prices

The fuel price debate has also turned attention to UNOC’s role in the petroleum supply chain and whether its procurement arrangements are helping to cushion consumers against international price shocks.

During the parliamentary discussions, MPs demanded a detailed breakdown of the prices at which UNOC supplies petroleum products to oil marketing companies.

Ms Musenero said coordinated procurement by the state-owned company had helped cushion exceptional price increases earlier in the year.

However, she had not yet received the detailed selling-price information requested by legislators and undertook to provide it.

Some MPs called for temporary tax relief or suspension of the additional excise duty, arguing that the increase was worsening the burden on consumers.

Others raised concerns about the weakening Shilling and its broader effects on the economy.

The debate was deferred pending a comprehensive government statement addressing the economy, including exchange-rate movements and their implications for fuel prices.

The outstanding questions include how much UNOC’s procurement arrangements reduce costs, how prices are determined along the supply chain and whether the benefits of coordinated purchasing are passed on to consumers.

Relief may take time

The IEA’s push to release emergency oil stocks is intended to increase available supplies and ease pressure on international markets. However, the intervention is temporary and cannot permanently replace regular shipments or resolve all the disruptions affecting refineries and petroleum-product transportation.

Diesel is particularly important to transport, industrial operations and other economic activities, meaning sustained price increases can feed into the cost of moving goods and providing services.

For Uganda, the immediate challenge is therefore twofold: maintaining reliable fuel supplies while limiting the impact of higher import costs on households and businesses.

The government’s assurance that stocks are sufficient addresses the risk of physical shortages, but it does not eliminate the risk of further price increases.

Until international supply pressures ease, the Shilling stabilises or domestic cost pressures decline, Ugandan motorists and businesses may continue to face expensive fuel even when supplies remain available.