In the first week of the US–Israeli war against Iran, its effects on Egypt’s economy were already apparent. The pound weakened after months of relative stability, while concerns grew over the withdrawal of short-term foreign investment—much of it originating in the Gulf—from the Egyptian market. That would add to the government’s burdens, particularly as a large share of its debt payments falls due in the first quarter of this year.
For the first time in several months, the pound fell past EGP 50 to the dollar last week. The dollar reached its highest level against the Egyptian currency in about nine months, amid rising demand for foreign currency and increasing monetary pressure. Further depreciation is expected if the war continues for several more weeks.
Despite the Egyptian government’s assurances in the middle of last week that food supplies were secure and alternative energy sources were available, observers interviewed by Zawia3 expressed serious concern about the crisis’s longer-term effects. Energy is a particular vulnerability: resuming Israeli gas exports to Egypt depends on a decision by Tel Aviv, which Israeli officials have linked to an end to the war.
Egypt imported 344 billion cubic feet of Israeli gas in the fiscal year ending in June 2025, according to official estimates. Domestic production is estimated at around 4.1 billion cubic feet per day, against consumption of approximately 6.2 billion. Imports from Israel and elsewhere therefore cover a substantial share of the shortfall.
Observers expect disruption to international navigation, particularly through the Strait of Hormuz and amid threats to close it to commercial shipping, to affect Suez Canal revenues directly. Those revenues have already suffered historic declines since Israel’s assault on Gaza began on October 7, 2023, and the conflict expanded to involve other regional actors.
Suez Canal revenues fell to $3.62 billion in fiscal year 2024/25, their lowest level in 20 years and a 45.5% decline from the previous fiscal year.
Fitch Solutions warned of an accelerating withdrawal of short-term foreign investment from Egyptian government debt instruments. In a report issued on Tuesday, it estimated outflows of about $1.8 billion between February 15 and 26, and expected further exits in the following weeks, potentially adding to exchange-rate pressure.
What lies ahead for Egypt’s economy?
Economist and academic Medhat Nafei argues that assessing the war’s consequences requires distinguishing between the short and long term, particularly with Gulf states under direct attack and the Strait of Hormuz already closed.
He tells Zawia3 that in the short term—days or weeks, as in the twelve-day war—a closure of Hormuz directly pushes up oil prices and disrupts part of the global energy trade. That increases Egypt’s import bill and puts pressure on inflation and the exchange rate.
Nafei says the suspension of gas supplies from the Leviathan and Tamar fields widens Egypt’s energy deficit. He also warns that further Houthi escalation in the Red Sea could bring Suez Canal revenues close to a standstill as ships avoid the route, while raising freight and insurance costs and, consequently, commodity prices.
In such a high-risk environment, short-term foreign capital tends to leave quickly, increasing pressure on the pound and the risk premium on debt instruments. Gulf investors also hold back as their own economies focus on domestic security and stability, he says.
The darker alternative, Nafei explains, is a prolonged war that confronts Egypt with a structural shock: a sustained decline in canal and tourism revenues, a wider energy gap, and persistent pressure on the balance of payments and exchange rate. Larger outflows of short-term capital would become more likely, potentially requiring further monetary tightening or emergency financing arrangements.
Gulf investment flows, he adds, depend on those countries’ ability to contain attacks and maintain oil exports through alternative routes. A prolonged disruption to their oil exports, navigation and trade would reduce their financial surpluses and capacity to invest abroad. It could also affect remittances from Egyptians working in the Gulf. With all foreign-currency sources under pressure, the pound would again lose value against the dollar, while markets would become unsettled in the absence of genuine structural reform.
Member of parliament and economist Mohamed Fouad agrees that Egypt is experiencing an external shock driven by escalating regional tensions. He identifies the interruption of gas supplies through regional pipelines as the main domestic vulnerability, placing additional pressure on the energy balance and current account.
Fitch Solutions notes that suspending pipeline gas imports from Israel creates a structural burden, as those supplies had covered between 15% and 20% of domestic consumption.
Although Cairo has contracted more than 100 liquefied natural gas cargoes for 2026, the current shortfall may force it into the volatile and expensive spot market. Fitch’s assessment is that this shift would increase the import bill, deepen the current-account deficit and prolong fears of electricity cuts.
Fouad says financial markets have already shown signs of repricing risk, including higher sovereign-risk insurance costs and a widening gap between the pound’s spot rate and forward pricing. He nevertheless describes these developments as manageable, rather than evidence of acute market anxiety.
The exchange rate is moving gradually and in an orderly manner, consistent with limited foreign portfolio outflows, he adds. Available data do not yet indicate a broad structural exodus from the Egyptian market.
Internationally, Fouad notes that global volatility has risen to levels reflecting heightened concern, but has not reached the panic zone that usually triggers mass investor exits. JPMorgan’s emerging-market debt indicators likewise do not yet show a broad withdrawal from assets in emerging economies.
For the real economy, he expects some short-term effects on tourism as travelers take precautions. The larger risks concern energy-intensive industries, which could experience limited production disruptions if gas supplies remain interrupted without effective alternatives.
Fouad concludes that current developments primarily reflect a repricing of risk rather than a comprehensive economic crisis. The immediate priority, he says, should be efficient management of energy supplies and daily monitoring of capital flows to keep markets stable.
International institutions’ estimates suggest that 2026 will be a demanding year for Egypt’s debt service. Debt payments, particularly external obligations, are expected to total roughly $60–70 billion over the year, with installments heavily concentrated in the first quarter. This increases short-term financing needs and makes the country’s finances more sensitive to external shocks or disrupted capital flows.
Despite the government’s announcement that the debt-to-GDP ratio had fallen by around 12% over the previous two years, and the subsequent Standard & Poor’s credit-rating upgrade in October—the first in seven years—debt service remained the most pressing challenge. Official figures indicate that it absorbed about 50% of total public expenditure and approximately 72% of total revenue in 2024/25, among the highest shares in comparable countries.
Three pressures on Egypt’s economy
Tarek Al-Rifai, chief executive of the Quorum Centre and a global-markets expert, says the war’s short-term economic effects differ significantly between Egypt and the Gulf. Egypt is particularly exposed because it relies on foreign capital, tourism and Suez Canal revenues for foreign currency. Regional conflict typically drives capital out of emerging markets, puts pressure on the pound and reduces tourist arrivals, another major source of foreign exchange.
“Any disruption to shipping or energy flows through the Red Sea or the Strait of Hormuz could affect Suez Canal traffic, another major source of Egypt’s foreign-currency income,” Al-Rifai tells Zawia3. Assessments suggest that war risks are already affecting Egypt’s currency markets, capital flows and inflation expectations.
For Gulf Cooperation Council economies, he describes the short-term picture as more complex. Most Gulf currencies are pegged to the US dollar, shielding them from the currency depreciation experienced by Egypt.
Higher oil prices driven by geopolitical risk may provide temporary fiscal gains for major exporters such as Saudi Arabia, the United Arab Emirates and Qatar, he says. Yet the region still faces immediate downside risks in tourism, aviation and logistics. Flight cancellations and regional insecurity could sharply reduce visitor numbers and damage the Gulf’s expanding tourism sector.
“Over the longer term, the greatest risk for Gulf states is strategic rather than financial,” Al-Rifai says. “Persistent instability could undermine investor confidence in the region as a safe global business hub and threaten diversification projects intended to reduce dependence on oil revenues. Continued attacks or disruption could also threaten energy exports and maritime trade through the Strait of Hormuz, through which about 20% of the world’s oil supplies pass.”
He concludes that Egypt faces immediate financial and monetary pressure. Gulf economies, while financially stable in the short term, face longer-term risks to investment, diversification and regional stability.
The Egyptian government faces heavy economic burdens this year. Since mid-November, it has begun implementing a broad package of consequential fiscal austerity measures to contain rising public debt and ease budget pressure. Concerns have grown about their effects on industrial growth and investment. The measures include higher energy, transport and government-service prices, alongside reduced reliance on sovereign guarantees for major projects in infrastructure, education, health and transport—sectors closely linked to job creation and economic activity.
The Finance Ministry has issued strict instructions limiting new sovereign guarantees to projects with high cash returns and clear investment viability. It has also called for a halt to expanding purchases of new assets or imported equipment unless they are self-financed or based on partnerships with private-sector or foreign investors through build–operate–transfer (BOT) or public–private partnership (PPP) arrangements. Some operating assets are also to be moved to sovereign funds for financing outside the state budget, to avoid adding debt or burdening the treasury with new guarantees for foreign loans.
A more optimistic assessment
Political-economy professor Karim El-Omda, by contrast, considers Egypt’s financial position stable despite regional challenges and foreign-currency pressure. He describes the pound’s recent decline against the dollar as a limited adjustment within a flexible exchange-rate framework rather than a collapse. Large foreign reserves and sound central-bank management, he says, provide strong support for the currency.
El-Omda tells Zawia3 that outflows of foreign short-term capital are familiar to Egypt, which experienced similar episodes during the 2020 pandemic, emerging-market crises and the Russia–Ukraine crisis. Every partial withdrawal does not necessarily mean the pound will collapse. He expects the dollar to peak at EGP 52–52.5, with the Egyptian currency later returning to levels in the forties.
He sees the energy crisis as an additional source of economic pressure, particularly with declining domestic gas production and the interruption of Israeli supplies. He stresses the need to secure alternative energy imports from countries such as Algeria and Russia to avert a prolonged crisis. These challenges could temporarily increase inflation and lead to repricing of imported goods, including cars, but panic would make matters worse.
El-Omda urges calm and cautions against extreme forecasts for the dollar or oil prices. He argues that global oil supplies are sufficient and Egypt has adequate strategic stocks of essential commodities, allowing the crisis to be managed effectively.
Fitch’s analysis, however, suggests that a prolonged regional conflict would erode Egypt’s external position through several channels. Higher global oil prices increase subsidy and import costs, while tourism and Suez Canal revenues fall. Remittances from Egyptians abroad may also be affected. These are the country’s principal sources of hard currency.
President Abdel Fattah El-Sisi’s comments highlighted the scale of the economic cost: he said disruption to Suez Canal navigation had caused losses approaching $10 billion to the Egyptian treasury.
Sisi warned against prolonging the war between the United States, Israel and Iran, saying any development leading to the closure of Hormuz would directly affect global navigation, including the Suez Canal, one of Egypt’s most important sources of national income.
Speaking on Sunday evening at the armed forces’ annual iftar marking the anniversary of the Tenth of Ramadan victory—the October 1973 war—Sisi said Cairo was closely and cautiously monitoring regional developments. Egypt, he stressed, was preparing for the possibility of a continuing war amid rapid escalation around Hormuz and its potential effects on global trade and energy prices.
The figures show the pressure on foreign currency and make managing the current crisis a test of endurance. International and regional conditions offer little flexibility, leaving economic policymakers limited room to maneuver between meeting financial obligations and securing essential goods.
