Israel’s recent actions against her foes in Lebanon, Iran, and Yemen are making Egypt, and others, nervous. President Sisi and his government are watching developments on their border with Israel closely. There remains real prospect for a significant escalation between Israel and Hezbollah, and perhaps the only thing holding Netanyahu back is his domestic standing. Back home Sisi is taking a bit of flak for some economic policy moves that are hitting people’s purses hard. The changes are part of the tough love strategy insisted on by the IMF but the average Egyptian doesn’t care. In truth, they haven’t yet seen the half of it. There is more pain to come.
Assassinations. Shortly after the inauguration of Iran’s new President, Hamas political leader Ismail Haniyeh was assassinated in Tehran, risking further escalation across the region. Israel also struck targets in Lebanon allegedly killing top Hezbollah commander Fouad Shukur. Egypt has reached out to the United Nations Security Council in response urging it, and other international parties, to take urgent action to condemn such incidents and to encourage dialogue to prevent a further spiral down into deeper (and wider) violence. Egypt also issued a statement strongly warning Israel of the perils of opening a new war front in Lebanon. As we have stated before, much of the West will be frantically trying to de-escalate tensions, attempting to dissuade Israel from going into Lebanon. Yet, recent public warnings by several western governments for its citizens to depart Lebanon immediately, and a recent US declaration that she will defend Israel in the event of a retaliatory attack by Hezbollah, give cause for concern that more violence is just around the corner. Add to this several US strikes against groups across the region in recent days, claimed to have been peremptorily defensive, indicate the heat is already turning up on tensions that were already simmering.
Gaza. Ceasefire negations between Israel and Gaza remain stalled. Weeks have rolled into months of cautious conversations and yet still the fighting in Gaza rages on. This week Hamas said it had received a latest response from Israel coming after talks were held in Rome between Egypt, Israel, Qatar and the USA. Hamas claim that Israel is intentionally blocking any attempts at a ceasefire by repeatedly adding new conditions or demands, an accusation Israel strongly denies. What is true however is that the head of Israel’s Prisoners and Missing Persons Administration, Nitzan Alon told journalists only days ago that he does “not intend to travel to Qatar” for the next round of talks. He added “there is no point in traveling” because Prime Minister Netanyahu “wants to make changes to the deal that Hamas will not accept.” Another truth is that the assassination of one side’s negotiator does make talking difficult. Egypt’s Foreign Ministry says that the deadly strikes in Iran and Lebanon undermine “the strenuous efforts made by Egypt and its partners to stop the war in the Gaza Strip,” and “indicate the absence of Israeli political will to calm the situation.” US State Secretary Antony Blinken called a Gaza ceasefire “imperative” yet he has put no real pressure on Israel to commit to any serious negotiations. At home, Netanyahu is facing increasing pressure to call early elections, a move that would almost certainly end his premiership but perhaps also end of the war in Gaza. For these reasons we suspect that Netanyahu will continue to kick the ceasefire can down the road to save his job, and if an occasional missile strike or assassination can distract the electorate these are tools he will use too. The next general elections in Israel are formally scheduled for October 2026. Gaza is already devastated. By 2026 it will be rubble. Egypt and Qatar know this, so expect them to ramp up the pressure on Israel to negotiate. Egypt may also indicate that it could show some flexibility toward Israel in relation to the Philadelphi Corridor – something that Israel would be severely tempted by.
Legislation. In efforts to stop the spread of fake news, the government has passed a law imposing strict penalties for those found guilty of circulating false reports and rumours. Under the new guidelines, individuals convicted of disseminating false information about Egypt now face up to five years in jail and hefty fines. Social media and online news channels have significantly increased the amount of false information floating around. We fail to see how local legislation will combat that, although the government will continue to block access to sites it deems offensive – but that is nothing a good VPN cannot work around so what is this law really for? Put simply; to gag opposition and intimidate journalists.
Numbers. We expect that the recently approved USD 820 million tranche from the IMF will be released within days after IMF officials completed their 3rd review of how well Egypt has met its loan obligations, scoring it well. The EGP is holding steady and currently trades at USD1 to EGP48.34. However, we do see that slipping slightly in the next 12 months and by mid-2026 we expect one greenback to be buying between EGP52 and 54. Egypt has reduced its external debt by USD14 billion in the first five months of this year. The amount owed fell to USD154 billion at the end of May down from USD168 billion as 2023 ended. When figures are released later today we expect that inflation will have fallen in the last financial year. As you can see, the economy is showing all the signs of being in recovery. The Central Bank (CBE) has held interest rates, currently 27.75%, but we doubt that will last much longer. Anticipate that the CBE will begin a monetary easing cycle in September, causing interest rates to drop by 4 to 5% by year end.
Subsidies. Fuel prices have been increased for the second time this year with rises of between 10 and 15%. This will certainly have a knock on effect on consumer pricing and raise inflation, at least in the short term, cancelling out the recent downward trend. The increase in fuel prices will save at least EGP36 billion in the 2024//25 fiscal year but we are not ruling out additional hikes as the government seeks to fully phase out petrol subsidies leaving this amount significantly larger. Also on our radar is an impending increase to the cost of subsidised fertilizer. Currently priced at EGP4,800 per tonne we anticipate that will surge by as much as 30%; a figure that will hit farmers where it hurts. After that, the next subsidy to be targeted will be electricity. Increases will not happen immediately but they are not far off. Even this government knows that they can’t increase bills while persistent black outs continue. When they do, however, we anticipate an initial increase of 20% with further gradual hikes later.
Electricity. So why are the lights continuing to go out? It is a simple answer; power plant fuel consumption in Egypt is at an all-time high. Power plants are now eating up a massive 165 million cubic metres of natural gas and fossil fuels per day. Since the recent devaluation of the EGP buying fuel on the hard currency market is now extremely expensive. Exact numbers are difficult to obtain but our best estimate puts the government as spending more to generate 1 kilowatt of electricity than it is currently charging for it and that is not sustainable. As Egypt’s population continues to rise and technology and machinery uses more and more power, cheaper alternatives must be sought. One plan already in play is a power interconnection project with Saudi Arabia. A coalition of three international companies is already working on it. Once completed it should see the two countries capable of exchanging up to 3,000 MW of electricity. The exchange will make use of the difference in peak load times between the two national grids and will maximise the benefits of generating electricity which in turn will reduce fuel consumption rates. The first phase of operation is set to launch in July 2025 and will be completed in early 2026. This is only one solution to ending the power cuts but it is, at least, a start. More sustainable and affordable ones will be required and the government must devote more time to sourcing them. In a land basking in so much sun, someone is eventually going to mention solar but for now it is still being largely ignored.
Telecoms. Telecom Egypt (TE) has announced that it will finally allow eSIMs to be available in Egypt before the end of the year. The digital SIM card will be offered by all mobile operators: Vodafone Egypt, Orange Egypt, Etisalat Misr and TE. TE has also announced a partnership with Nokia to begin the national deployment of 5G technology. Details of this are still sketchy, however. No time frame has been released, nor which cities will come online first. What is clear though is that it has taken Egypt long enough to get on board with 5G. The technology has been widely in use in the EU and USA since 2019. It can provide speeds up to 100 times faster than Egypt’s existing 4G network but as any Egyptian network subscriber will tell you, there is only a connection, fast or slow, if there is power to the transmitters that provide it. And that brings us right back to fixing the electricity problems.
Suez Canal revenues have dropped to around USD 300 million per month. Previously income was around USD 850 million. Houthi attacks on vessels in the Red Sea did decrease slightly in July but not enough to encourage shipping companies to choose it as a route. On 9th July the US flagged Maersk Sentosa was struck by an un-crewed aerial vehicle off the coast of Yemen. No serious damage was reported. On 15th July the oil tanker, MT Chios Lion, was hit by an un-crewed surface vessel damaging its port side but leaving the vessel operational. Satellite images are showing oil slicks in the region because of these and other previous attacks. Attacks and disruption to traffic will continue and are yet another reason why shippers are choosing the long route around Africa instead of the canal. Revenue from the canal will continue to be severely impacted.
Egypt faces troubles on its southern border with Sudan, the western border with Libya, and in the east with Gaza. Foreign investment shows good signs of bringing in big returns yet further escalation of tensions in the region will endanger tourism, trade flows and rattle investor confidence. The world is watching Israel. Egypt is watching its economy. Sisi’s next moves will be dictated by both.