The direct confrontation between Israel and Iran has pushed the Middle East into a new phase of acute tension. As the two sides exchange missiles and drones, Egypt is watching from a difficult position: seeking to contain the escalation while protecting interests that reach into almost every part of the conflict.
What began with Israeli attacks on Iran and Iranian retaliation is no longer a distant security issue for Cairo. Gas supplies and electricity generation, shipping through the Suez Canal, tourism and regional diplomacy are all exposed. Egypt’s geographical position and overlapping relationships leave it little room to act as a detached observer.
Analysts interviewed by Zawia3 warn that regional escalation can quickly become a domestic economic problem: interrupted gas supplies, volatile financial markets, weaker tourism earnings and additional pressure on foreign currency reserves.
These risks come at a time when Egypt is already under severe financial strain. Diplomacy therefore serves an immediate economic purpose as well as a political one: preventing a wider war, or at least limiting the damage it could inflict on an already vulnerable economy.
The Suez Canal in the danger zone
The consequences of the confrontation extend beyond the battlefield to the region’s shipping routes. For Egypt, whose Suez Canal connects the Mediterranean to the Red Sea, disruption to international navigation is both an economic and a strategic concern. Further attacks or threats to vessels could encourage shipping companies to avoid the route, compounding an existing crisis.
Mohamed Hamed, director of the East Mediterranean Forum for Political and Strategic Studies, tells Zawia3 that the escalation threatens the security of the Red Sea and the canal. He highlights the risks surrounding maritime chokepoints and growing military activity. The Strait of Hormuz and Bab el-Mandeb are distinct waterways: threats involving Iran at Hormuz should not be confused with Iranian control of Bab el-Mandeb, which it does not possess. Escalation involving Iran’s regional allies could nevertheless affect Red Sea shipping.
Hamed argues that Israel’s ability to strike sensitive sites deep inside Iran demonstrates intelligence and technological advantages that are reshaping the regional balance. In his assessment, Israeli expansion of influence has reached a new peak, confronting Egypt and other states with an increasingly unstable strategic environment.
“Egypt, for its part, rejects any Israeli hegemony over the region, particularly if the Iranian regime collapses,” he says. He also sees Israel as suffering from internal instability and the cumulative costs of fighting on several fronts since October 2023. In his view, those pressures encourage confused decision-making rather than a coherent long-term strategy.
That instability could, he suggests, create some room for Cairo to advance its position on issues such as the Grand Ethiopian Renaissance Dam, security arrangements in Gaza, and the future of the Red Sea and eastern Mediterranean. These possible diplomatic openings do not alter his overall assessment: the conflict’s political, economic and diplomatic effects on Egypt are negative. He expects recurring tensions in Egyptian–Israeli relations as regional influence is redistributed.
The canal has long been one of Egypt’s principal sources of foreign currency. The Suez Canal Authority reported approximately $9.4 billion in revenue for fiscal year 2022/2023. That figure refers to a fiscal year, rather than the 2023 calendar year. Lost shipping revenue puts additional pressure on Egypt’s external finances and reduces a crucial source of dollar income.
Alternative routes may take longer and cost more, yet companies can still choose them when security and insurance risks outweigh the savings of travelling through Suez. Egypt is therefore exposed even when the fighting itself remains far from its territory.
An economy already under pressure
The financial effects were quickly visible. Egypt entered the crisis facing inflation, high external debt and continuing challenges over exchange rates and investment. Regional uncertainty added another shock to that fragile position.
The benchmark EGX30 index fell 7.5% in early trading on 15 June before recovering part of that loss and closing 4.6% lower, according to Arabeya Online’s market report of 16 June. The distinction matters: the intraday fall was larger than the closing decline. Selling pressure and concern about a prolonged confrontation also increased demand for assets perceived as safer, including gold and dollars, adding pressure on the Egyptian pound.
International affairs researcher Salah Labib tells Zawia3 that the confrontation has not, at this stage, become an all-out regional war. Its immediate effects on Egypt remain concentrated in economic pressures, alongside political and security repercussions. But he warns that a wider conflict could be “far more dangerous” in its consequences than the US invasion of Iraq in 2003. That is his assessment of a possible escalation, rather than a description of an outcome already reached.
Despite the long estrangement between Cairo and Tehran since Iran’s Islamic Revolution, Labib sees Iran’s presence as a constraint on Israeli power. Egypt and Israel have maintained a peace treaty for more than four decades, but, in his analysis, the existence of other strategic rivals limits the pressure Israel can exert on Egypt.
“If Israel succeeds in eliminating all its opponents in the region, it will become more aggressive towards states it regards as competitors or threats to its influence, including Egypt,” Labib warns.
He does not expect a weakened Iran automatically to damage Egyptian–American relations. Egypt is a longstanding US ally, and both countries have invested in that relationship politically, militarily and economically over decades. The risk, he argues, is indirect: an increasingly dominant Israel might face fewer restraints if a serious disagreement with Cairo develops.
Labib characterises Israeli policy as an expansionist colonial project that seeks to impose facts on the ground by force. He points in particular to the threat of forcibly displacing Palestinians, which could bring both Egypt and Jordan into confrontation with an Israeli government backed by military superiority and close ties to Washington. At the same time, he maintains that Egypt has the capacity to resist such pressure.
A further danger, he says, would arise if Iran believed its regime faced a genuine attempt at overthrow. Tehran might then broaden its response to US bases in the region or international shipping routes, with potentially serious consequences for the canal and Egypt’s economy. These remain scenarios he is discussing as of the report’s publication date.
Labib also identifies a possible route to de-escalation: a settlement with Washington under which Tehran accepts major restrictions on its nuclear ambitions in exchange for the regime’s survival. He invokes Libya under Muammar Gaddafi as an analogy for negotiated concessions. If such an agreement emerged, he believes, direct threats to Egyptian economic projects would diminish substantially.
Energy security: gas in the line of fire
Gas supplies were among the first channels through which the confrontation reached Egypt. Israel suspended production at Leviathan and Karish as a precaution after the escalation on 13 June. Karish’s operator, Energean, announced that day that it had been ordered to halt operations. Tamar was not one of the two fields initially shut down.
The interruption of Israeli supplies left Cairo seeking urgent alternatives just as summer temperatures were increasing electricity demand. Contemporary press estimates cited in the Arabic report put the missing imports at up to 800 million cubic feet a day. The precise volume varied with the period and supply conditions; it should not be treated as a fixed share of domestic demand.
The shortfall raised fears of renewed power cuts. One response was to increase the use of fuel oil and diesel in power stations able to burn them. These substitutes can be more expensive and more polluting than natural gas, while their effect on efficiency depends on the equipment and operating conditions.
The pressure extends beyond household electricity. Energy-intensive industries—including fertilisers, steel and cement—face interrupted supplies or higher costs when gas is diverted or unavailable. Production disruptions can then work their way through to prices in the domestic market. Fertiliser production, in particular, is closely dependent on gas both as an energy source and as an industrial input.
Gas scarcity also constrains Egypt’s ambition to earn foreign currency through liquefaction and re-export facilities such as Idku. This difficulty predates the current war. The International Energy Agency’s first-quarter 2025 gas report had already identified Egypt’s shift to being a net LNG importer in 2024 as domestic production declined. The new disruption compounds that underlying shortage; it did not create the export problem from scratch.
At the same time, fears over oil supply routes in the Gulf and Red Sea pushed international energy prices higher. For an importer such as Egypt, more expensive oil adds to the foreign currency needed for fuel purchases and can intensify pressure on public finances. The eventual cost depends on how long prices remain elevated, the volume imported and the government’s response.
Diplomacy: condemning escalation while avoiding war
Egypt’s diplomacy must reconcile longstanding relationships with the need to protect its interests. Cairo has explicitly condemned Israel’s attacks on Iran: its statement of 13 June warned against the consequences for regional security and called for diplomatic solutions. It would therefore be inaccurate to describe Egypt as having issued no condemnation of either party.
Egypt and Israel have maintained security and economic relations since the peace treaty of 1979, with substantial cooperation in gas and security coordination relating to Sinai and Gaza. Cairo has also pursued a cautious opening towards Tehran through diplomatic meetings and channels of communication, including contacts during the presidency of the late Ebrahim Raisi.
Against this background, Egypt is seeking to help contain the escalation without becoming a direct military participant. The Arabic report cites diplomatic sources describing contacts with Washington, Tel Aviv and Tehran aimed at preventing the conflict from spreading to additional Arab states.
Sara Kira, director of the European–North African research centre, tells Zawia3 that Cairo is conducting intensive diplomacy to safeguard its economic and security interests. She identifies safe navigation through the Suez Canal and wider regional stability as particular priorities. Whether those efforts succeed will depend both on developments on the battlefield and on Egypt’s ability to act as an effective mediator while staying out of direct military confrontation.
Like Hamed and Labib, Kira expects substantial economic pressure. Threats to Red Sea navigation and canal revenue, she says, deepen the strain on the budget. The chronology is important: the canal’s revenue losses began with the Red Sea shipping crisis from late 2023. They cannot all be attributed to the direct Israel–Iran war that began in June 2025.
Kira also sees the war as imposing difficult choices over regional and international relationships. She portrays Egypt’s diplomatic experience and record of protecting its borders without entering direct conflicts as strengths it can draw on. This is her assessment of Cairo’s position, rather than a guarantee that it can insulate itself from the crisis.
Kira warns that higher energy costs could increase the burden on producers and consumers, while prolonged uncertainty could deter foreign investment and slow tourism and the services that depend on it.
Egypt’s official response combines condemnation of the Israeli attacks with calls to halt the escalation and resume diplomacy. The Foreign Ministry warned of the danger to regional stability and the risks of a widening confrontation. Foreign Minister Badr Abdelatty has sought to prevent the region from sliding into a broader war.
Egypt also joined a joint statement published on 16 June by the Qatari Foreign Ministry. That version lists 20 Arab and Muslim-majority countries. It condemns Israel’s attacks, calls for an end to hostilities and a return to negotiations, and emphasises sovereignty, international law and the UN Charter.
The Arabic report also describes Abdelatty’s telephone contacts with his Russian, Italian and Spanish counterparts, aimed at mobilising international efforts to prevent further deterioration. At home, it cites reporting on a government security and economic crisis mechanism to monitor the conflict’s repercussions and consider scenarios for a wider escalation.
The fighting is not taking place on Egyptian territory, but its consequences are already crossing borders. Gas dependence exposes electricity generation to decisions and military developments elsewhere. Shipping insecurity threatens a major source of foreign currency. Market volatility and higher import costs transmit regional tensions into the lives of people already facing economic strain.
Cairo’s challenge is to manage those interconnected risks while navigating relationships with states on opposing sides of the confrontation. Diplomacy may limit the damage, but the crisis has underlined how vulnerable domestic stability can be to an external shock.
