The Nyabarongo main bus park is filled with local and regional bus services. They all consume diesel. Despite the growing electric vehicles, they are still minimal
KIGALI — With global diesel markets remaining unusually tight and refining margins elevated, the Rwandan government is facing growing pressure to expand its existing fuel subsidy if it wants to prevent another increase in the pump price of diesel.
The current maximum retail price of diesel stands at Rwf2,927 per litre, a level maintained largely through government support. Without the intervention, officials have previously indicated that the pump price would have reached about Rwf3,600 per litre.
Between March and June 2026 alone, the government spent nearly Rwf48 billion cushioning consumers and businesses from international fuel price increases.
But the pressure facing Rwanda is no longer simply a matter of higher crude oil prices.
Diesel has developed its own global supply problem.
Why diesel
Diesel and petrol are both refined from crude oil, but they do not face exactly the same market conditions.
Diesel belongs to a group of products known as middle distillates, which also includes jet fuel and heating oil. These products are particularly important to freight, agriculture, construction, mining and industry.
Petrol, by contrast, is used predominantly by passenger vehicles and tends to have more flexibility on the demand side. People can reduce driving, change travel patterns or postpone some journeys when petrol becomes expensive.
Diesel demand is harder to reduce because much of it is tied to economic activity. A truck still has to deliver food. A tractor still has to work a field. A construction machine still has to operate.
This makes diesel demand relatively less sensitive to price increases.
The supply side is also different.
A refinery does not simply turn crude oil into whichever fuel is most expensive at a particular moment. Every barrel produces a mixture of products, and refineries have technical limits on how much they can shift production towards diesel.
When diesel inventories are already low, even a relatively modest disruption can therefore cause prices to jump.
The US Energy Information Administration has pointed to tight global distillate supplies and elevated refining margins as important drivers of diesel prices.
The result is a widening gap between the price of crude oil and the price of diesel.
The difference is reflected in the diesel crack spread — essentially the margin between the price refiners receive for diesel and the cost of the crude used to produce it.
When that margin becomes unusually large, it means the market is paying a substantial premium for the refined diesel itself rather than simply for the underlying crude.
So why isn’t petrol facing the same pressure?
This is one of the less obvious features of the current fuel market.
Petrol has generally been better supplied than diesel during the latest disruption.
Refineries can produce both fuels, but the balance between supply and demand is different. Petrol markets in many regions have had more available inventories and greater flexibility in production and consumption.
Petrol demand is also more discretionary.
When petrol prices rise, motorists can drive less, switch vehicles, postpone trips or use public transport where it is available. Those adjustments can weaken demand relatively quickly.
Diesel is different.
A truck carrying imported goods cannot simply decide to make fewer trips because diesel has become expensive. Neither can a farmer easily postpone fuel use during planting or harvesting. This gives diesel a stronger connection to the wider economy and makes demand more difficult to suppress.
That difference becomes particularly important when refineries are disrupted.
The same geopolitical shock can affect both petrol and diesel, but the impact on diesel can be much larger if diesel inventories are already low or if the affected refineries and exporters are important suppliers of middle distillates.
This is why diesel prices have, in several major markets, risen faster than petrol even though both ultimately originate from the same barrel of crude.
A global diesel squeeze
The pressure is visible in some of the world’s largest fuel markets.
US retail diesel reached $6.529 per gallon in the week of September 21, according to the EIA, compared with $2.780 a year earlier.
In Europe, average diesel prices reached about €2.23 per litre by September 21, representing an increase of nearly 40 percent since late February, while petrol had risen by about 28 percent over the same period.
The difference matters because diesel is effectively the workhorse fuel of the real economy.
Trucks use it to move food and manufactured goods. Farmers use it to operate tractors and other machinery. Construction, mining, generators and heavy equipment also depend heavily on it.
That means a diesel shock can spread through an economy differently from a petrol shock.
Higher diesel costs raise freight charges. Freight raises the cost of moving food and other commodities. Farmers face higher production costs, while businesses using generators and heavy machinery face higher operating expenses.
The result is additional inflationary pressure even in economies where consumers do not use much diesel directly.
Rwanda feels the shock more sharply
For Rwanda, the global diesel shock is amplified by the country’s position as a landlocked, import-dependent economy. Despite having a growing EV transport sector.
The country must pay not only for the refined product itself but also for transportation, storage and logistics from international suppliers to regional ports and then overland to Rwanda.
The government has already acknowledged the size of the shock.
Prime Minister Justin Nsengiyumva has said that without government intervention, diesel would be selling at around Rwf3,600 per litre rather than the controlled price of Rwf2,927.
The subsidy was introduced after global fuel prices surged amid conflict and disruptions around the Middle East and the Strait of Hormuz.
That intervention amounts to roughly Rwf673 per litre, or about 19 percent of the unsubsidised price.
The Prime Minister has defended the support by pointing to diesel’s role in the wider economy.
The fuel powers much of Rwanda’s public transport, freight transportation and agricultural machinery. Allowing the full international cost to reach consumers would therefore not stop at the pump.
Transport operators would face higher costs, potentially leading to higher fares. Trucking costs would increase, affecting the price of food and other goods. Farmers and businesses would also absorb higher operating costs.
The subsidy dilemma
The government therefore faces a difficult calculation.
Maintaining the current price requires absorbing part of the international shock through public finances. Increasing the subsidy would provide additional protection to consumers and businesses but put further pressure on the budget.
Allowing the price to rise would reduce the government’s direct fiscal burden but transfer the cost to transporters, businesses, farmers and consumers.
The dilemma is becoming more complicated because there is no guarantee that diesel prices will immediately fall even if crude prices decline.
A reduction in crude prices would remove one source of pressure, but diesel could remain expensive if refineries remain constrained, inventories stay low or major exporters continue to face disruptions.
Conversely, higher refinery output, rebuilding of inventories and reopening of disrupted supply routes could eventually narrow diesel refining margins and ease prices.
Beyond the subsidy
The government is pursuing measures intended to make Rwanda less vulnerable to international fuel shocks.
It is expanding petroleum storage capacity, targeting 230 million litres by 2029/30, while also diversifying the routes through which the country imports fuel.
The recent activation of government-backed petroleum import arrangements through Kenya and Tanzania is part of that broader effort.
Rwanda’s new arrangement with Kenya allows the Rwanda National Energy Company to import bulk refined petroleum products through the Northern Corridor, using Kenya’s port, pipeline and storage infrastructure.
The first 40,000-tonne government-backed cargo arrived at Mombasa on September 29, marking the operational start of the new arrangement.
But diversification of supply routes does not eliminate exposure to global diesel prices. Whether fuel arrives through Mombasa, Dar es Salaam or another regional gateway, Rwanda remains dependent on the international market for the refined products themselves.
The longer-term response therefore involves several layers: securing supply routes, maintaining strategic stocks, improving storage capacity, reducing unnecessary consumption and gradually reducing dependence on petroleum through measures such as electric public transport.
For now, diesel remains at Rwf2,927 per litre.
The question for policymakers is how long the government can maintain that price if the global diesel market remains tight.
Rwanda’s problem is no longer simply that crude oil is expensive. Diesel is facing a separate global supply squeeze because it is harder to replace, harder to cut demand for and currently more constrained at the refining and inventory levels than petrol.
That distinction could determine whether the current subsidy remains sufficient — or whether the government will have to spend more to prevent another increase at the pump.
