Egypt’s economy, already burdened by debt, inflation, and a weak currency, is facing new challenges as the war in Gaza affects its vital sources of income: the Suez Canal and natural gas. The Houthi rebels in Yemen have targeted Israeli-linked ships in the Red Sea, causing many vessels to avoid the Suez Canal and opt for the longer route around Africa. Meanwhile, Egypt depends on Israeli gas for its domestic and export needs, but the supply has been disrupted by the closure of the Tamar gas field during the first month of the war.
The Suez Canal is one of the most important waterways in the world, connecting Europe and Asia and facilitating the movement of goods and energy. The canal accounts for 2% of Egypt’s GDP and provides a significant source of foreign currency for the country. However, the canal has seen a sharp decline in traffic and revenue since the outbreak of the war in Gaza in October 2023, as the Houthi rebels have intensified their attacks on ships that visit Israel or have Israeli connections.
According to maritime consultancy firm Drewry, the number of ships passing through the canal fell by 64% in the first weeks of 2024, compared with the same period of 2023, from 138 to less than 50 per day. In January 2024, Egypt earned $428 million from the canal, down 47% from $804 million in January 2023, despite raising the tariffs by 5%-15% in the middle of the month. On the other hand, the traffic around Africa’s Cape of Good Hope increased by 168% in January, from 77 to 206 ships.
The loss of traffic and revenue from the canal has dealt a severe blow to Egypt’s economy, which is already struggling with a debt crisis, soaring inflation, and a collapsing currency. Egypt owes the IMF $12 billion, the second highest amount in the world, and has recently received a $3 billion loan spread over 46 months. Egypt also faces a budget deficit of 7.4% of GDP and a public debt of 87.5% of GDP. The inflation rate in Egypt reached 14.1% in January 2024, while the Egyptian pound depreciated by 18% against the US dollar in the past year.
Natural gas supply is disrupted and dependent
Natural gas is another key sector for Egypt’s economy, both for local consumption and for export. Egypt produces natural gas from its own fields, such as Zohr and Nooros, and also imports gas from Israel, mainly from the Leviathan and Tamar fields. Egypt uses the gas for its power generation, industry, and households, and also liquefies it and exports it to global markets. Egypt is the largest LNG exporter in Africa and the sixth largest in the world.
However, the war in Gaza has also affected Egypt’s gas sector, as Israel reduced its supply to Egypt due to the shutdown of the Tamar gas field for the first month of the war. The Tamar gas field, which is located off the coast of Gaza, was closed for security reasons after Hamas fired rockets at the offshore platform. The Tamar gas field accounts for 17% of the gas exports from Israel to Egypt, while the Leviathan gas field accounts for the rest. The closure of the Tamar gas field caused a shortage of gas in Egypt and a loss of LNG revenues.
Egypt’s dependence on Israeli gas also exposes it to political and security risks, as the relations between the two countries are often tense and volatile. Egypt was the first Arab country to sign a peace treaty with Israel in 1979, but the public opinion in Egypt is largely hostile to Israel and supportive of the Palestinian cause. Egypt has also mediated several ceasefires between Israel and Hamas, and has tried to balance its interests and obligations as a regional power and a US ally.
Egypt’s gas sector also faces other challenges, such as the decline in domestic production, the increase in domestic demand, the competition from other LNG suppliers, and the environmental impact of gas extraction and consumption. Egypt aims to become a regional gas hub and to diversify its sources and markets, but it also needs to invest in renewable energy and energy efficiency to reduce its carbon footprint and ensure its energy security.
Egypt’s economy needs stability and reform
Egypt’s economy, which is the largest and most diversified in the Arab world, has shown resilience and growth in the past years, despite the political and social turmoil that followed the 2011 uprising that toppled the long-time dictator Hosni Mubarak. Egypt has implemented several economic reforms, such as cutting subsidies, raising taxes, floating the currency, and attracting foreign investment, with the support of the IMF and other international partners. Egypt has also developed its infrastructure, tourism, industry, agriculture, and technology sectors, and has improved its human development indicators, such as health, education, and poverty reduction.
However, Egypt’s economy still faces many challenges and vulnerabilities, as the war in Gaza and the Houthi attacks have demonstrated. Egypt needs to restore stability and security in the region and to protect its strategic assets, such as the Suez Canal and natural gas. Egypt also needs to continue its economic reform and diversification, and to address the structural and social problems that plague its economy, such as corruption, inequality, unemployment, and human rights violations. Egypt also needs to foster a more democratic and inclusive political system, and to respect the aspirations and demands of its people for freedom and dignity.