Uganda Shilling: 4,000 Amid Iran War Risks

Uganda’s shilling has approached the Shs4,000-to-the-dollar level because of the ongoing Iran war that causes disruptions in the global oil market and leads to increased U.S. dollar demand. The shilling was traded at 3,925 to 3,935 per dollar on September 17 as compared to 3,860 to 3,870 per dollar seven days earlier, as reported by Reuters. A source at Reuters said that the currency can touch 4,000 within the next few days.

This pressure comes from several factors, including higher oil prices and increased demand for foreign currency from companies and importers.

Why is the Ugandan Shilling Under Stress?

In the short term, there is a strong relationship with fuel price developments.

Brent crude was trading above $100 per barrel on September 17, at $104.82, after having traded above $109 at earlier stages of the week on concerns regarding supply disruptions in the Middle East.

Fuel is a commodity that the country heavily relies on imports of. An increase in oil prices internationally will increase the demand for U.S. dollars to make payments for fuel imports in the country’s foreign exchange market.

The Bank of Uganda has also cited increased international oil prices and geopolitical uncertainties as threats to both the currency and inflation. In its May monetary policy statement, the shilling depreciated by 4.16% between February and April 2026 due to the Middle Eastern conflict and related uncertainties.

Increasing Dollar Demand Increases Pressure

There is also pressure on companies other than those in the energy sector that need to get more dollars.

According to Adam Mugume, the Bank of Uganda’s executive director for research and policy, there is still high demand from manufacturers and energy firms. Reuters noted that some people in the market are even purchasing forward dollars due to the uncertainty regarding the duration of the war.

This behavior will increase the pressure on the shilling. Some companies might be expecting higher import costs in the future, hence the need to obtain dollars early, thus increasing demand for dollars in the foreign exchange market.

The currency was under pressure even before this new development. According to Daily Monitor, the shilling depreciated to Shs3,917 per dollar on September 14 against the August value of Shs3,704.51.

What Is Bank of Uganda Doing?

Bank of Uganda has already raised the liquidity levels this year.

It announced an increase in the cash reserve ratio (CRR) for the commercial banks in March from 9.5 percent to 11 percent. This action would mean that more money is kept as reserves in the central bank and less is available for lending and investments.

According to the Bank of Uganda, the reason behind this decision was to control excess liquidity levels and manage inflation expectations.

Also, the Bank of Uganda warned that an extended and/or severe crisis in the Middle East region would raise the price of oil and thus raise the inflation level.

How Does a Weak Shilling Affect Uganda?

This will increase the cost of importing goods like fuel, machinery, industrial inputs, and other products due to increased currency cost.

This may lead to an increase in the prices of goods due to an increase in costs incurred in transporting and producing these goods. According to the Bank of Uganda, the weak shilling is one of the factors that pose an inflation risk. For firms, the problem lies in the fact that firms importing their raw materials incur high costs due to exchange rate risks.