The Federal Government of Somalia (FGS) on 20 May passed a new Petroleum Law setting out revenue-sharing measures between Somalia's federal and regional governments, a significant development towards offshore exploration activity. The same day, two Somali senators and a minister with diplomatic passports were denied entry to Kenya, the latest event in a long-running escalation in diplomatic disputes between the two countries.

We assess that Kenya likely refused entry to Somali government officials in retaliation for Somalia's passing its Petroleum Law, which is a progression towards oil exploration in blocks whose ownership remains contested between the two countries. The International Court of Justice (ICJ) has been arbitrating the delimitation of the contested 100,000-square-kilometre maritime area since 2014 and in February 2017 rejected the Kenyan government's appeal that a memorandum of understanding signed with Somalia in April 2009 precluded the court's involvement.

It is likely that Kenya intends to pressure Somalia into reaching an out-of-court settlement. Kenya issued exploration licenses for blocks L21, L22, L23, and L24 in 2012, which Somali authorities say lie within the disputed area. If the ICJ rules in favor of Somalia, Kenya may be contractually required to compensate companies it awarded the blocks to, including Eni Spa. An out-of-court settlement would likely help Kenya to avoid compensation payments while also removing the possibility of an ICJ ruling wholly in Somalia's favor. The Kenyan authorities have already exerted leverage over the FGS in recent months, which is likely to increase in light of the Petroleum Law. For instance, an emissary was sent to Hargeisa in April 2019 to establish a foreign mission in the self-declared independent Republic of Somaliland (Somalia), undermining the FGS's claims of sovereignty over the area. According to a leaked United Nations document, Kenya is also seeking to close the Dadaab refugee camp, home to around 250,000 refugees near its border with Somalia. The government of Kenya previously announced the closure the camp in May 2016, but the High Court blocked the directive in 2017.

The Kenyan government is likely to continue delays to aircraft arriving in the country from Somalia as part of this strategy. Travel between the two countries is likely to face continued delays in transit; on 10 May, Kenyan authorities ordered all flights from Somalia to stop at Wajir Airport in northeastern Kenya to undergo security checks, disrupting air travel. Kenya is also likely to impose more stringent visa requirements on Somali nationals seeking to enter Kenya, particularly representatives of the FGS.

Indicators of changing risk environment

Increasing risk

• The government of Kenya imposing restrictions on remittance payments from Kenya to Somalia, reducing revenue streams available to fund Somalia's budget, which is heavily reliant on foreign donor inflows.
• The Kenyan government engages directly with Somalia's federal members states, undermining the ability of the FGS leadership to successfully transfer security responsibilities from the regional African Union Mission in Somalia (AMISOM) peacekeeping force to the Somali National Army, and likely delaying Somalia's scheduled 2020 elections.
• The Kenya Defense Forces withdraw from forward operating bases within Somalia to consolidate forces in Kismayo and along the Kenyan border, or, less likely, unilaterally reduce their troop contributions to AMISOM, which would increase the operation footprint and tempo of Islamist militant group Harakat al-Shabaab al-Mujahideen (Al-Shabaab).
• Kenyan authorities proceed with the closure of Dadaab refugee camp, which, if legal challenges against this were to fail, would result in the large-scale return of Somali refugees to Somalia, further undermining the FGS's ability to provide social services and security and likely benefiting Al-Shabaab's local recruitment strategies.

Decreasing risk

• Albeit unlikely, the ICJ issues a ruling on the Somalia-Kenya border dispute within the one-year outlook, which would reduce Kenya's incentive to apply punitive policies to Somalia to force an out-of-court settlement.
• Somalia's federal member states continue to oppose a revenue-sharing arrangement with the FGS, as indicated during failed meetings held on 5-7 May, which would likely hinder the advancement of a newly proposed licensing round and allay Kenyan fears of Somali oil exploration in the disputed area.

Posted 05 June 2019 by William Farmer, Analyst, Sub-Saharan Africa, Country Risk, S&P Global