Uganda's decision to explore fuel imports through Tanzania's Port of Tanga has sent shockwaves through the Kenyan oil industry, potentially jeopardizing billions of dollars in trade and threatening the livelihood of numerous businesses.

Previously, Uganda had expressed interest in using Tanzania's Dar es Salaam port, a much longer route compared to the preferred Mombasa port in Kenya.

However, the emergence of talks with Tanga, situated significantly closer to Kampala, has intensified concerns in Kenya.

"The mood in the industry has been that the Tanzania talk by Uganda was just posturing to push Kenya to give it concessions," stated a source familiar with the negotiations.

"But this has changed completely because Uganda are now serious and are close to reach an agreement with Tanzania to use the Tanga port."

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The potential shift poses an existential threat to Kenyan oil companies, as Uganda currently purchases 90 per cent of its fuel through Kenya.

The Petroleum Outlets Association of Kenya (POAK) chairman, Martin Chomba, emphasized the dire consequences: "If Uganda indeed moves to the Tanzania route, a lot of local oil companies will really suffer because they will lose their biggest market."

Furthermore, Kenya stands to lose significant foreign exchange revenue. Uganda's annual fuel imports through Kenya amount to $2 billion, contributing substantially to the country's dollar inflows. Chomba highlighted, "The transit market is a key source of forex for the country and this would really affect dollar inflows."

The state-owned Kenya Pipeline Company (KPC) is also at risk of losing substantial income because of the potential decline in transit fuel volumes.

KPC currently charges oil companies for utilizing its pipeline infrastructure, generating millions of shillings in revenue.

The escalation of the situation stems from Uganda's decision to appoint the state-owned Uganda National Oil Company (UNOC) as the sole importer of its fuel.

UNOC's application to operate as an OMC in Kenya and utilize KPC's pipeline was denied by the Kenyan authorities, leading to a lawsuit filed by Uganda at the East African Court of Justice.

The potential shift to Tanga port signifies a significant development in East African regional trade dynamics, with far-reaching implications for both Kenya and Uganda.

The coming months will be crucial in determining the outcome of this ongoing negotiation and its impact on the future of the region's oil sector.