Egypt: What are the consequences for the country of the war against Iran and regional tensions?

Egypt is entering this crisis with stronger fundamentals than during previous external shocks (the war in Ukraine, tensions in the Red Sea in 2023, etc.), thanks in particular to a high level of foreign exchange reserves (USD 53 billion, or about 7 months of imports), the continued GDP growth recorded over the last two quarters of 5.3%, and a primary surplus of 4.2% of GDP in the first half of 2025/26. However, some indicators already appear to be deteriorating.

Faced with uncertainty since the start of the conflict, the increase in the risk premium demanded by investors appears higher than that recorded in other countries in the region, including the Gulf economies. A sustained deterioration in Egypt’s financing conditions would increase its already high debt burden, while gross financing needs are estimated at nearly 40% of GDP.

At the same time, after significant inflows in recent months, driven by renewed economic activity, capital outflows from Egypt have exceeded USD 7 billion since the beginning of the conflict, representing a third of outflows from all emerging markets. This outflow now appears to have stopped, with only modest capital inflows observed. In response, the Egyptian pound has depreciated significantly, reaching its lowest historical level against the dollar, at nearly 53 EGP/USD on March 9, and registering a 10% loss since February 27, greater than that observed in the region.

Rising oil and gas prices are weighing on the energy balance and the current account deficit (4.2% of GDP in 2024/25), while foreign exchange earnings are already weakened by the anticipated decline in tourism and Suez Canal revenues. Although the Bab el-Mandeb Strait remains unaffected at this stage, the persistent threat of attacks on shipping traffic has been enough to deter insurers and shipowners. Furthermore, rising energy prices are fueling inflationary pressures, with inflation having already rebounded to 13.4% in February.

However, supply risks appear contained at this stage. Approximately 65% ​​of Egypt’s crude oil and refined product imports come from Gulf countries, but domestic production covers about 70% of oil demand. Regarding natural gas, that from Israel accounts for 16% of domestic consumption – deliveries, interrupted at the beginning of the conflict, have been restored, albeit at a low level estimated at 15% of usual flows – but approximately 92% of liquefied natural gas supplies come from the United States.

At this stage, the emergency measures implemented by the authorities are primarily focused on food and energy security, as well as preserving budgetary balance.

An inter-ministerial crisis unit has been established within the Egyptian cabinet, with energy and food security as its priorities (which, for the authorities, do not currently pose a major concern in terms of supply, but rather a significant increase in their cost), as well as budgetary discipline. The first measures announced on March 10 focused on preserving the budget.

The increase in fuel prices (between 14% and 17%) aims to mitigate the impact of rising international prices on public finances and is consistent with commitments made under the IMF program. Additional, more symbolic measures also aim to streamline public spending (cancellation of government events, reduction in official travel, etc.). While the price of baladi bread has been capped at 2 Egyptian pounds, the minimum wage for civil servants is expected to increase starting next year.

Naturally, the extent of the effects of this conflict and their impact on the government’s medium-term strategy will depend on its duration.

Source: French Embassy in Cairo