Egypt Faces Multiple Challenges Due to Iron Swords and a Crisis-Stricken Red Sea

Egypt’s Economic Dilemma: Reliant on Israeli Gas but Seeking Relations with the Houthis

Egypt is currently facing a multitude of challenges due to the ongoing conflict known as Iron Swords. Not only is this war multi-arena, but it also has the potential to harm countries that are not directly involved in the fighting. Among these countries is Egypt, which is experiencing the worst possible timing for a war. The situation has been exacerbated by the crisis in the Red Sea due to Houthi attacks, which has caused significant damage to the Suez Canal. At the same time, Egypt is grappling with a debt crisis, rising inflation, and a crashing currency while managing ongoing issues with Israel in the Gaza Strip.

The Suez Canal is a crucial component of Egypt’s GDP, contributing about 2% to its economy. However, the crisis in the Red Sea due to Houthi attacks resulted in a 64% drop in traffic in the canal during the first two weeks of this year. This significant loss of traffic led to a 47% drop in revenue from January compared to December last year. Additionally, maritime analysis company “Draori” reported that traffic around Cape Good Hope increased by 168%, diverting traffic away from the Suez Canal. There are concerns that this trend could continue in the future and lead to a significant reduction in canal capacity.

Egypt’s reliance on Israeli natural gas has also played a role in this situation. The shutdown of Tamar for a month highlighted how dependent Egypt is on Israel for natural gas supply, raising concerns about shortages during summer when gas consumption typically increases by up to 30%.

Egypt’s escalating debt crisis further complicates these challenges as it holds large loans taken on recently and faces concern from credit rating companies over its financial stability. Cairo has initiated discussions with international monetary fund (IMF) to secure additional aid funds but efforts towards stabilizing economy are complicated by fixed exchange rate of Egyptian pound and talks about potential devaluations along with sharp interest rate increases, all carrying their own risks particularly relating inflation where Reuters economist forecast anticipates only 3.5% growth overall for current fiscal year indicating that Egypt is placed at difficult uncertain position

Leave a Reply