{"id":16727,"date":"2026-03-05T21:32:19","date_gmt":"2026-03-05T19:32:19","guid":{"rendered":"https:\/\/zawia3.com\/?p=16727"},"modified":"2026-10-24T14:56:32","modified_gmt":"2026-10-24T12:56:32","slug":"war-and-the-economy","status":"publish","type":"post","link":"https:\/\/zawia3.com\/en\/war-and-the-economy\/","title":{"rendered":"As War Escalates, Egypt\u2019s Economy Is Exposed on Every Front"},"content":{"rendered":"

During the first week of the US-Israeli war against Iran, direct effects on the Egyptian economy became apparent, the most prominent of which is the decline in the pound’s exchange rate after months of relative stability, while serious fears are being raised about the withdrawal from the Egyptian market of hot money, the largest share of which is held by the Gulf, which would mean doubling the burdens on the government, especially given its commitment to repay the largest tranche of debt during the first quarter of this year.<\/span><\/p>\n

For the first time in several months,<\/span> the pound fell<\/span><\/a> against the dollar last week, exceeding the EGP 50 threshold, which is<\/span> the highest<\/span><\/a> level recorded by the currency in about nine months, amid rising demand for the dollar and increasing monetary pressures in the Egyptian market, and expectations that the rise will continue if the war extends for several more weeks.<\/span><\/p>\n

Despite the<\/span> reassurances<\/span><\/a> issued by the Egyptian government in the middle of last week regarding securing food needs and providing energy alternatives, observers who spoke to us express serious fears about the long-term impact of the crisis, especially with regard to the energy file, which hinges on Tel Aviv’s decision to resume gas exports to Egypt, a matter linked to an end to the war, according to Israeli officials. <\/span><\/p>\n

Egypt imported 344 billion cubic feet of Israeli gas in the fiscal year ending in June 2025, according to official<\/span> estimates<\/span><\/a>, while domestic production is estimated at about 4.1 billion cubic feet per day and consumption at about 6.2 billion cubic feet per day, which means that imports (Israeli and others) cover a significant share of the gap.<\/span><\/p>\n

Observers believe that the disruption to international shipping, especially in light of the disruption of the Strait of Hormuz and the threat to close it to commercial vessels, will have direct repercussions on Suez Canal revenues, which have recorded historic declines since the Israeli aggression on Gaza on 7 October 2023, and the subsequent widening of the circle of war and the involvement of regional parties in it. <\/span><\/p>\n

Suez Canal revenues fell during the 2024\/2025 fiscal year to USD 3.62 billion,<\/span> recording<\/span><\/a> their lowest level in 20 years, a decline of 45.5% compared with the previous fiscal year. <\/span><\/p>\n

For its part,<\/span> the research firm Fitch Solutions warned<\/span><\/a> of the accelerating pace of the withdrawal of short-term foreign investment from government debt instruments in Egypt, explaining in a report it issued on Tuesday that foreign investment in these instruments recorded an outflow estimated at about USD 1.8 billion during the period from 15 to 26 February, and expecting the exits to continue in the coming weeks, which could aggravate the pressure on the exchange rate.<\/span><\/p>\n

 <\/p>\n

Recommended reading:<\/b> The war on Iran.. How does the US-Israeli escalation touch Egypt’s borders?<\/b><\/a><\/p>\n


\nWhat Awaits the Egyptian Economy? <\/b><\/h1>\n

Academic and economist Dr Medhat Nafea believes that reading the repercussions of the current war requires distinguishing between the short and long term, especially as the Gulf states are exposed to direct attacks and the Strait of Hormuz has actually been closed.<\/span><\/p>\n

He explains, speaking to Zawia3, that the short term (weeks, or days as in the Twelve-Day War) means the closure of the Strait of Hormuz, which will directly push up oil prices and disrupt part of global energy trade, doubling Egypt’s import bill and putting pressure on inflation and the exchange rate. <\/span><\/p>\n

Nafea points out that the halt of gas supplies from the Leviathan and Tamar fields aggravates the energy gap, and he also notes that a Houthi escalation in the Red Sea could lead to a near halt in Suez Canal revenues as ships shy away from passing through, and would raise the cost of shipping and insurance and, consequently, of goods.<\/span><\/p>\n

He notes that in this high-risk environment, hot money tends to exit quickly, which increases the pressure on the pound and raises the risk premium on debt instruments. Likewise, Gulf investments hold back because their economies are preoccupied with security and internal stability<\/span>.<\/b><\/p>\n

The other scenario, the bleakest as the economics professor describes it, is that the war drags on, which means that the Egyptian economy will face a structural shock: a prolonged decline in Canal and tourism revenues, a wider gap in the energy balance, and continuous pressure on the balance of payments and the exchange rate. A larger exit of short-term money becomes likely, and the situation may require additional monetary tightening or emergency financing arrangements.<\/p><\/blockquote>\n

As for Gulf investment flows, they depend on the ability of those states to contain the attacks and continue their oil exports by alternative routes; if oil exports and shipping and trade in and through them are disrupted for a long period, their financial surpluses will shrink, which limits their ability to pump out foreign investments and has a negative impact on the remittances of Egyptian workers in the Gulf, and consequently the pound will once again bleed value against the dollar under the pressure of the decline of all foreign currency resources, and markets will be thrown into confusion in the absence of real structural reforms, according to Nafea.<\/span><\/p>\n

MP and economist Dr Mohamed Fouad agrees with him, as he believes that the Egyptian economy is currently being exposed to an external shock linked to rising regional tensions, and points out that the main point of fragility at home is the interruption of gas supplies via the regional pipelines, which imposes additional pressure on the energy balance and the current account.<\/span><\/p>\n

Fitch Solutions points out that the<\/span> suspension<\/span><\/a> of pipeline gas imports from Israel imposes a structural burden, as these supplies covered between 15% and 20% of domestic consumption.<\/span><\/p>\n

Although<\/span> Cairo has contracted<\/span><\/a> for more than 100 cargoes of liquefied natural gas for 2026, the current gap may force it to resort to the volatile and costly “spot market”. This forced shift means a bigger import bill and a deepening of the current account deficit, in addition to the continuing spectre of power cuts that has come to haunt the Egyptian street, according to Fitch’s estimates.<\/span><\/p>\n

Fouad explains that the financial markets have already shown some indicators of a repricing of risk, among them the rising cost of insuring against sovereign risk and the widening gap between the pound’s spot rate and its pricing in forward contracts, but these developments, as he describes them, are still within a range that can be contained and do not reflect a state of acute anxiety in the markets.<\/span><\/p>\n

He adds that the exchange market is witnessing a gradual and controlled movement consistent with a limited exit of foreign portfolio investments, stressing that the available data do not point to a broad structural wave of outflows from the Egyptian market so far.<\/span><\/p>\n

At the international level, Fouad points out that the global volatility index has already risen to levels that reflect a state of high anxiety, but it has not yet entered the panic range that usually drives investors to exit markets en masse. He also notes that the emerging market debt indices issued by JPMorgan do not so far show signs of a broad withdrawal from assets in emerging economies.<\/span><\/p>\n

Regarding the effects of the crisis on the real economy, Fouad expected tourism to see some short-term effects driven by travellers’ caution, while the greatest risks remain linked to energy-intensive industries, which may face limited production interruptions if the disruption to gas supplies continues for a longer period without effective alternative solutions.<\/span><\/p>\n

Fouad concluded that the current developments essentially reflect a process of repricing risk more than a comprehensive economic crisis, stressing that the priority at the current stage must focus on managing the energy file efficiently and monitoring capital flow indicators daily to ensure market stability.<\/span><\/p>\n

International institutions’ estimates<\/a> indicate that 2026 will be a year of pressure on the debt service front in Egypt, as debt maturities, especially external ones, are expected to range between about USD 60 billion and USD 70 billion during the year, with a notable concentration of instalments in the first quarter, which deepens short-term financing needs and increases the sensitivity of the financial situation to any external shocks or disruptions in capital flows.<\/p><\/blockquote>\n

Despite the government’s announcement of a<\/span> reduction<\/span><\/a> in the debt-to-GDP ratio of about 12% over the past two years, and the subsequent<\/span> upgrade<\/span><\/a> of its credit rating by Standard & Poor’s last October, for the first time in seven years, the burden of debt service has remained the most acute challenge. Official data indicate that debt service<\/span> accounts<\/span><\/a> for about 50% of total public expenditure, and about 72% of total revenues in 2024\/2025, among the highest ratios among peer countries.<\/span><\/p>\n

 <\/p>\n

\u0643\u064a\u0641 \u062a\u062a\u062d\u0631\u0643 \u0627\u0644\u0642\u0627\u0647\u0631\u0629 \u0628\u0639\u062f \u0648\u0642\u0641 \u0627\u0644\u063a\u0627\u0632 \u0627\u0644\u0625\u0633\u0631\u0627\u0626\u064a\u0644\u064a\u061f<\/a><\/p><\/blockquote>\n