Issue No. 326

Ethiopia Grinds to a Halt

The sparks from the Middle East's conflagration have set Ethiopia's laboured fuel industry ablaze, and the country is grinding to a halt. Ongoing geopolitical and fiscal shocks emanating from the US/Israel war with Iran—and the spill-over across the Gulf—have left few regions untouched. With no satisfactory end in sight, the decades-old—if creaking—US-underpinned security architecture in the Middle East has been upended, as have the globalised hydrocarbon networks that long served as the financial lifeblood of energy-importing states. 

The Horn of Africa is no different, with Ethiopia left particularly exposed by the metastasising conflict far from its shores. Ethiopia sources most of its gasoline and diesel from Kuwait, Saudi Arabia, and the UAE, with the hydrocarbon flow through the Strait of Hormuz severely disrupted, Ethiopia — like many other nations — has been rocked by the immediate economic fallout. The consequences have been immediate and severe, and Addis now finds itself exposed to price volatility as well as physical constriction of supply. Such vulnerability is compounded by Ethiopia's near-total reliance on a single import corridor through Djibouti, through which the overwhelming majority of its fuel must pass. 

At their root, though, these consequences are as much a foreign exchange crisis as a fuel one. Ethiopia entered this shock with virtually no usable reserves — the IMF programme agreed following the 2023 sovereign debt default has stabilised the birr without replenishing the dollar position — meaning the government cannot pay for emergency spot-market procurement at any price without compounding a balance-of-payments emergency that was already critical. Then, over 183,000 metric tonnes of fuel failed to arrive due to regional instability, forcing the state-owned Ethiopian Petroleum Supply Enterprise (EPSE) to switch to emergency spot procurement, at far higher cost and with far more limited supply. Daily diesel provision has fallen by roughly half, from 9.2 million litres to approximately 4.5 million litres, while the per-barrel price of gasoline has surged well above USD 100. On 1 April, the government was compelled to implement its second price hike within a month, with diesel reaching 163.09 birr per litre and gasoline 142.41 birr — a 26.3% increase in diesel costs since February alone.

Drivers are already reporting multiple days of waiting for fuel. And so, the country's complex, fractured supply lines —with insecurity plaguing Amhara, Oromia, Tigray and beyond —are being undermined further still, with perishable goods reportedly lost in trucks. Major cities are grinding to a halt. With virtually no strategic fuel reserves — a staggering vulnerability for any state — the government has been forced into reactive, expensive, and inadequate policies, scrambling for alternative procurement while rationing what little supply exists and prioritising security institutions and export agriculture while ordinary economic activity contracts around them. And food insecurity, already acute, is being compounded by the inability to move produce. By June, an estimated 15 million people are expected to require food assistance. With key urea and fertiliser flows funnelled through Hormuz as well, a lack of fuel for agriculture will worsen this further still, with concerns further mounting over fertiliser supply to land that conflict has already rendered peripheral.

Ethiopia was always going to be peculiarly vulnerable to precisely this kind of shock, being 100% dependent on imported refined petroleum products, with no domestic refining capacity and no meaningful strategic reserves. And well before the events of the past weeks, the centralised fragility of Ethiopia's fuel industry has been under growing scrutiny. For decades, the state-owned EPSE has been the sole importer and supplier of petroleum products, constituting a monopolistic arrangement with a propensity for immense graft. And despite importing more than 4.3 billion litres of petroleum products in 2024/25 — an 8% increase on the previous year — the gap between supply and demand had already been widening before the Gulf crisis struck, with the market outstripping what was incoming.

Despite PM Abiy Ahmed's rewiring of much of the Ethiopian economy and state, the fuel sector has remained largely untouched. Even so, the EPSE itself has been rocked by graft scandals in the past two years. A federal court case currently underway is shedding further light on the reach of the corruption, with 14 senior government and fuel officials charged with establishing a complex network to illegally siphon vast quantities of hydrocarbons. Among the most striking allegations is that 68 fuel tankers were hijacked in July 2025 alone, alleged to have hoarded fuel to create artificial scarcity, then reaped the rewards when the government hiked prices. This time out, on 21 March, Trade Minister Kassahun Gofe announced that a national crackdown had resulted in 613 arrests and the seizure of nearly 450,000 litres of fuel, with police warning that the activities threaten "the daily lives of citizens and national stability."

As part of its agreement with its wide-ranging macroeconomic reforms with the IMF, Addis was required to lift a range of subsidies — including those on fuel — with the intention of aligning national prices with international standards, much as the floating of the Ethiopian birr was intended to bring exchange rates into line with market realities and reduce pressure on the treasury. In practice, the process has been haphazard. Fuel support has continued to be targeted, in theory, at low-income families, while artificially subsidised prices — lower than those in neighbouring states — have incentivised cross-border smuggling, further leaking supply. And in reality, petrol and diesel prices have continued to surge, with the black market operating at rates far above the official pump price. But monthly subsidy costs are now estimated at roughly USD 263–351 million — an unsustainable figure for a government already starved of foreign exchange. Yet the political arithmetic of removing subsidies in the midst of a supply crisis, with inflation only just dipping below 10% and popular discontent visibly simmering, is brutally difficult. 

More broadly, the nature of corruption in Ethiopia has demonstrably shifted since the years of the Ethiopian People's Revolutionary Democratic Front (EPRDF) and Meles Zenawi's concept of the "developmental state." Graft existed under that system — concentrated within the clientelist networks surrounding the upper echelons of the Tigray People's Liberation Front — and yet the state itself produced considerable infrastructure. Patronage was extractive, but it was also, in its way, productive, with roads built and dams constructed. 

Since 2018, however, the political economy of Abiy Ahmed's state has proven demonstrably more corrosive, with the bite of war and new patrimonial systems taking their toll. Much of the state itself has been corroded — repositioned not to deliver goods and services but as a lever of patronage and power, with the fuel sector a case in point. What was once a centralised instrument of national supply has become, in significant part, an instrument of extraction, with officials at multiple levels of the system allegedly complicit in diverting supply for private gain. Moreover, the fuel corruption controversy carries unmistakable echoes of the wheat scandal, in which government officials — allegedly with the blessing of the prime minister's office — remilled and exported grain donated by USAID and the World Food Programme, even as famine gripped Tigray. Vast sums were stolen and redistributed to rival forces, as well as sold on the black market for profit. Fuel, wheat, foreign exchange; in each domain, state control over allocation has been converted into a mechanism of private accumulation, and in each domain, the cost of that accumulation has been transferred downward.

Almost since records began, social unrest has been linked to the cost of essential commodities — wheat and, more latterly, fuel. The Flour War of 1775 in France portended the Revolution; the Sudanese Revolution of 2018–2019 was ignited, in part, by the removal of fuel subsidies. If the Ethiopian government can no longer keep the costs of everyday items within reach of ordinary citizens, the political consequences are unlikely to remain contained indefinitely. With the June 2026 elections now weeks away, the government cannot afford visible unrest at precisely the moment it needs to project legitimacy.

Addis is clearly aware of this risk. Beyond the economic implications of the fuel crisis, the government is visibly concerned about social unrest. Years of sustained inflationary pressure — coupled with broader fiscal pain — have cut deep into Ethiopians' pockets, while state services have shrunk to a handful of privileged neighbourhoods. The administrative response has already acquired coercive dimensions; on 24 March 2026, the Ethiopian Defence Engineering Industry Group directed both military and civilian staff to take mandatory leave within two days, alongside restrictions on vehicle movement and reduced fuel allocations for officials.

Whether social discontent can translate into a political movement capable of challenging the government is another matter, however. The Ethiopian state has proven itself wholly capable of constricting peaceful resistance and political expression. The space for organised opposition has narrowed sharply under Abiy, and the historical precedents for mass mobilisation — including the Qerroo movement that helped bring the PM to power — have not, as yet, been replicated at a comparable scale.

There is, perhaps, a final irony worth noting. The fuel crisis may itself be acting as a brake on the government's more dangerous ambitions. Addis likely has neither the fuel nor the cash to sustain any prolonged military conflict — particularly with Oromia and Amhara already ablaze. The seemingly inexorable drift back toward large-scale war may, for now, be stalled not by diplomacy or political will, but by simple material constraint. That is cold comfort for the millions of Ethiopians waiting at empty fuel stations or facing another season of food insecurity compounded by a state that has hollowed itself out. What the current crisis lays bare is the exposure of a political economy that has been quietly consuming itself — one in which the institutions nominally responsible for managing a strategic national resource have become, in significant part, instruments for looting it. The Middle East crisis may have lit the match, but the fuel for this fire was already there.

The Ethiopian Cable Team