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

ByEditor

Feb 10, 2024

“Iron Swords” is a unique type of war not only because it is multi-arena, but also because it causes harm to countries that are not even involved in the fighting. Among these countries is Egypt, which is experiencing the worst possible timing for a war. The situation has been made worse by the crisis of the Houthis in the Red Sea, which has caused serious damage to the Suez Canal. At the same time, Egypt is dealing with a debt crisis, rising inflation, and a crashing currency while managing the ongoing issues with Israel in the Gaza Strip.

The Suez Canal is a significant component of the Egyptian GDP, contributing about 2%. However, the crisis in the Red Sea due to the Houthi attacks caused a 64% drop in traffic in the canal in the first two weeks of the year. This significant loss in traffic led to a 47% drop in revenue from the canal in January compared to the previous year.

Further complicating the situation, the maritime analysis company “Draori” reported that traffic around the Cape of Good Hope increased by 168%, diverting traffic away from the Suez Canal. There are concerns that this trend could continue in the future, leading to a significant reduction in the canal’s capacity.

Egypt’s dependence on Israeli natural gas has also played a role in the impact of the Iron Swords War. The shutdown of Tamar for a month highlighted the country’s reliance on Israel for natural gas, raising concerns about shortages in the summer when gas consumption in Egypt typically increases by up to 30%.

Egypt’s escalating debt crisis has further compounded these challenges, as the country has taken on large loans in recent years, causing concern from credit rating companies. Cairo is currently holding discussions with the International Monetary Fund to secure additional aid funds.

Efforts to stabilize the economy are complicated by the fixed exchange rate of the Egyptian pound, with discussions of potential devaluations and sharp interest rate increases. However, these measures carry their own risks, particularly relating to inflation. The Reuters economist forecast for the current fiscal year anticipates only a 3.5% growth. Overall, the combination of factors arising from the Iron Swords War are placing Egypt in a difficult and uncertain position.

By Editor

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