At the end of March, Egypt President Abdel Fattah el-Sisi pleaded with US President Donald Trump to bring an end to the conflict in Iran, which began in February when the US and Israel launched “Operation Epic Fury” against Tehran.
“I tell President Trump: nobody can stop the war in our region in the Gulf but you,” Sisi said at an event in Cairo. “Please, Mr President, please. Please help us stop the war. You are capable of doing so.”
Such appeals are perhaps unsurprising, given that Egypt has arguably been the African country most affected by the outbreak of a conflict that has thrown global markets into disarray and significantly undermined growth prospects across the African continent.
The most immediate impact of the war has been to send oil prices soaring. With Iran responding to the war by effectively closing the Strait of Hormuz – through which roughly a third of global crude oil trade passed in 2025 – prices have spiked by as much as 80%.
At the time of writing, oil prices were hovering around $100 a barrel: President Sisi has warned “the price of a barrel of oil could reach more than $200, and this is not an exaggeration,” in the event of prolonged hostilities.
The rise of oil prices has been economically devastating for Cairo, which last year already saw a record petroleum import bill of $21bn. According to the Atlantic Council thinktank, “as a rule of thumb, each $10 increase in oil prices raises Egypt’s energy import bill and worsens the current account balance by approximately $2.5bn.”
The Atlantic Council’s initial projection suggests that Egypt’s current account deficit will increase from roughly $15bn to $24bn this year as a result of the higher oil import bill, as well as lower remittance flows and tourism revenue.
The government has imposed a 9pm nightly closing time for shops, cafes, and malls in Cairo (pictured) to conserve energy as a result of soaring fuel costs. Tourist attractions and hotels are exempt as Egypt seeks to retain as much tourism business as possible.
A ceasefire was announced in early April as the US sought to reopen the Strait of Hormuz, but it is fragile and maritime traffic in the waters remains extremely low. Iran said it would be reopening the Strait after Israel agreed to a ceasefire in Lebanon – a move which immediately had a positive impact on global markets – but the US then said that it would nonetheless be maintaining a naval blockade on Iranian ports. In response, Iran re-closed the Strait and resumed attacks on commercial shipping.
Canal woes
Another reason for instability in the wider Gulf having particularly negative ramifications for Egypt is that it restricts traffic through the Suez Canal, not least as vessels find it harder to get insurance. Many are being re-routed around the Cape of Good Hope. Suez Canal transit fees have historically contributed around 2% of Egypt’s annual GDP and are a vital source of foreign exchange.
With Egypt also relatively geographically close to the conflict, and highly exposed to elevated oil prices, foreign investors have been selling Egyptian assets.
Investors have sold off an estimated $2bn worth of local government bonds. The Egyptian pound fell to its lowest level on record, hitting $0.0183 on 7 April. With the central bank stepping in to stabilise the market, and with the loss of Suez Canal transit fees, analysts are predicting that Egypt’s foreign exchange reserves may have dropped by as much as $5bn in a single month.
Timothy Kaldas, deputy director of the Tahrir Institute for Middle East Policy, tells African Business that Egypt faces a “deteriorating economic situation”.
The country has, Kaldas says, “seen several billion dollars in capital flight, which has placed pressure on the authorities to devalue the pound, which is now one of the world’s worst-performing currencies. That is going to contribute to inflationary pressure in Egypt, just as they were finally getting away from some of the really astronomical figures we have seen for the last few years.
“The devaluation of the currency means that the cost of buying energy and commodities at the elevated prices is exacerbated,” Kaldas adds. “They are also forcing restaurants and stores to close early, and Cairo is a city that genuinely never sleeps – so that is a lot of economic activity you are knocking off until you resume normal hours.” Kaldas also notes that the war has exposed diplomatic differences between Egypt and some of its partners in the Gulf. Cairo, keen to bring the war to a swift conclusion, has been trying to play a mediator role alongside Pakistan, and therefore had open lines of communication with the Iranian government.
Lenders’ displeasure
This public engagement with Tehran, at a time when the Gulf was itself under fire from Iranian missiles, was met with criticism in some corners and could prove to have economic consequences.
“Egypt has $4bn in deposits in the central bank of Kuwait, which normally just keeps getting rolled over,” Kaldas says. “But the Kuwaitis have now said they have not reached a decision yet as to whether or not to do so again, with $2bn worth maturing right now – so that could put additional pressure on Egypt.”
The United Arab Emirates (UAE) is the leading source of foreign direct investment into Egypt by a considerable margin. It has also implied displeasure with Cairo. In March Anwar Gargash, a presidential advisor in the UAE, asked: “the Arab Gulf states were a mainstay and partner to all in terms of prosperity… so where are you today in times of hardship?”
Some analysts have warned that a financial crisis in Egypt could have repercussions across the region. The Atlantic Council has noted that “a financial disruption in Egypt would reverberate not only across the Middle East and North Africa but potentially across global markets as well. Egypt’s economy is large, systemically important within the region, and interconnected with global financial flows…
“History shows that financial crises rarely remain contained. The Mexican peso crisis of 1994 and the Thai baht devaluation of 1997, which triggered the Asian financial crisis, both began as localised currency events but quickly propagated across markets, asset classes, and national economies.”