Iran War Accelerates Economic Strain on Egypt Amid Rising Energy Costs

The ongoing U.S.-Israeli military actions against Iran are exerting significant pressure on Egypt’s already fragile economy. This situation is exacerbating energy costs, disrupting exports, and prompting foreign investors to divest from Egyptian treasuries, according to analysts and official data.

Economic Impact of the Conflict

Egypt, with a population nearing 120 million, is considered a critical player in regional stability by many Western nations. Historical upheavals in the country have previously led to shifts in migration patterns, trade through the Suez Canal, and security concerns along the Gaza border. The current conflict has intensified these challenges.

The nation is grappling with substantial debt, with interest payments consuming approximately half of government expenditures for the current fiscal year. Inflation rates have remained in double digits, peaking at 38% in September 2023.

To address its large budget deficit, Egypt relies on short-term foreign investments in Egyptian pound treasuries, commonly referred to as “hot money.” These funds are essential for financing vital imports, including gas and wheat. As of the end of September, foreign investors held around $45.7 billion in Egyptian pound treasury bills, according to the central bank’s monthly statistical bulletin.

Outflows and Currency Pressure

Since the onset of the conflict on February 28, total portfolio divestments are estimated to be between $5 billion and $8 billion. Data from the stock exchange indicates that foreign investors became net sellers of treasuries in early March, although this does not fully capture the extent of divestments. These outflows are significantly lower than the estimated $20 billion lost during the initial COVID-19 pandemic and the subsequent turmoil following Russia’s invasion of Ukraine.

The Egyptian pound has depreciated to over 52 against the dollar, a decline from around 47 prior to the conflict. Despite this, Egypt’s net foreign assets, totaling a record $29.5 billion, may help mitigate the economic shock, according to Hany Aboul Fotouh, a banking analyst and founder of Alraya Consulting. Foreign reserves were reported at a robust $53 billion as of February 2026. However, prolonged conflict could further inflate costs related to shipping, insurance, and energy, potentially pushing the pound beyond 55 per dollar.

The finance ministry has not commented on these figures, and the central bank has not responded to inquiries.

Energy Security and Domestic Prices

On March 10, Prime Minister Mostafa Madbouly reassured citizens that Egypt was securing its energy needs to prevent disruptions in manufacturing and avoid a return to the summer blackouts experienced two and a half years ago. Finance Minister Ahmed Kouchouk stated that more than half of Egypt’s petroleum needs were covered under hedging contracts, which have helped stabilize prices.

However, disruptions in Israeli gas supplies and rising energy prices have compelled Egypt to increase domestic fuel prices for the second time in less than six months. NematAllah Choucri, head of research at HC Securities, projected that escalating costs could double Egypt’s petroleum subsidies for the fiscal year, which is budgeted at around 75 billion pounds (approximately $1.4 billion at current rates).

Madbouly confirmed that despite rising energy costs, diesel and liquefied petroleum gas remain subsidized, although the status of gasoline subsidies is unclear. A research note from Morgan Stanley indicated that ongoing conflict and transit disruptions could elevate Egypt’s energy import bill by $1 billion to $2.4 billion for the remainder of the fiscal year.

Export Challenges

The conflict has already begun to impact Egypt’s export capabilities, with rising freight and insurance costs hindering trade. Mohamed Fouad, an economist and member of the parliament’s economic committee, noted that export declarations dropped by 77% in the initial days of the war compared to the same period the previous year. Specifically, export declarations to Saudi Arabia and the United Arab Emirates—accounting for over a third of Egypt’s exports—declined by 83% and 90%, respectively.

The Ministry of Investment and Foreign Trade, responsible for export statistics, has not responded to requests for comment.

Other vital sources of foreign currency, such as tourism, Suez Canal transit fees, and remittances from workers in Gulf nations, could also be adversely affected by a prolonged conflict, though the full extent of the impact remains uncertain.

The Egyptian pound has already faced significant devaluation in recent years, particularly following capital flight from treasury markets triggered by Russia’s invasion of Ukraine. External support, including an $8 billion loan agreement with the International Monetary Fund and a $35 billion investment from the UAE in a Mediterranean development project, has provided some stability.

However, the longer the conflict persists, the greater the risk of a self-reinforcing cycle of capital outflows and investor hesitance toward Egypt and other emerging markets. Analysts have noted that Gulf nations, typically major backers of Egypt, are currently facing their own economic challenges, limiting their capacity to assist.

As reported by www.zawya.com.