Egypt appears to be directly affected by the negative repercussions of the escalation between Iran and Israel. The assassination of the Secretary-General of the Lebanese Hezbollah, Hassan Nasrallah, following Israel’s political murder of Hamas leader Ismail Haniyeh in Tehran, and Iran’s response — it fired around 200 ballistic missiles at Israel on 1 October — put the entire Middle East on the brink of a large-scale war.
Despite Egypt’s caution and balance, Cairo is facing several risks and heavy losses on various levels, worsening its geopolitical dilemma for the second year in a row. Egypt’s finances may bear the brunt of these losses, but the potential repercussions could go much further, with parties to the conflict not respecting the normal rules of engagement and crossing many red lines, amid anticipation of a possible Israeli response to Iran.
What’s going on in the region is not in Egypt’s favour. It is surrounded by unrest with Gaza to the north-east, Sudan to the south, Libya to the west and the Red Sea to the east. The latter is raising fears of continued losses in Suez Canal revenues, after international shipping has been affected by Yemen’s Houthis’ attacks on ships heading to Israeli ports or otherwise connected with the occupation state.
A few days ago, Egyptian President Abdel Fattah Al-Sisi estimated that tensions in the Red Sea are costing his country more than $6 billion in lost revenue from the Suez Canal. The canal connects the Red Sea and the Mediterranean, through which 12 per cent of total global trade and about 30 per cent of shipping containers in the world pass, according to Bloomberg.
These losses threaten to exacerbate Egypt’s economic predicament, which depends on income from the canal for foreign currency, receiving $9.4bn in the fiscal year 2022-2023.
Suez Canal revenues are at their lowest quarterly level in 19 years, dropping by about 65 per cent.
Revenue for the second quarter of this year amounted to about $870 million, compared with in excess of $2.5bn for the same period in 2023, according to data from the Central Bank of Egypt.
The longer the conflict lasts, the more chances there are that shipping companies will change their route from the Red Sea to the Cape of Good Hope. It can also reinforce the global trend towards opening new sea lanes with the aim of reducing any risks that navigation may be exposed to in the Suez Canal.
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Last December, Russian President Vladimir Putin said that, “The Northern Sea Route [linking the Atlantic and Pacific Oceans] is becoming more efficient than the Suez Canal in transporting goods,” reported Russia’s TASS.
In addition to disrupting trade, the current conflict is causing a decline in tourism, as well as raising the prices of goods, services and fuel, thus increasing the cost of imports every month. Egypt relies on importing many strategic goods from abroad, including oil, gas, iron, wheat, corn and medicines, official data from the Central Agency for Public Mobilisation and Statistics confirms.
Egypt’s losses due to the Iranian-Israeli escalation may extend to other sectors, if gas platforms are targeted, thus depriving Egypt of Israeli gas. This may result in a return of power cuts in Egypt, in addition to harming tourism, and the hotel and entertainment sectors. Meanwhile, airlines are avoiding the airspace of several countries in the region.
The Egyptian government relies on Israeli gas imports to meet part of the local demand, as well as for export through Idku and Damietta, in the north of the country.
Another result of the geopolitical tensions in the region is the rise in oil prices.
This appeared in the jump in Brent crude futures contracts by about five per cent after the Iranian attack on Israel, and prices may rise further if the conflict expands and Iranian oil facilities are targeted.
Gold prices are also on the rise with increased demand for a safe investment haven, given the escalation of risks, and the war on Gaza entering its second year without a ceasefire agreement. These are indicators that generally raise inflation rates in Egypt and maintain the wave of high prices that has dominated the markets during the past few years.
In addition, there are indirect losses and burdens, including the flight of foreign capital, the reluctance of investors to pump new investments into the Egyptian market, and the influx of refugees from Lebanon to Egypt.
The European Bank for Reconstruction and Development warned that the escalating crisis in the Middle East could harm countries such as Egypt and Jordan, amid expectations of a decline in economic growth across the region.
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If the war does expand regionally, Egypt’s potential losses could reach $13.7 billion, which is the size of the decline in revenues from the Suez Canal and the tourism sector combined, according to forecasts issued by the UN Development Programme.
In July, the International Monetary Fund lowered its expectations for the growth of the Egyptian economy by 0.3 per cent, at 4.1 per cent during the current fiscal year, compared with 4.4 per cent in April due to the ongoing war on Gaza and the escalation of tensions in the Red Sea.
In another context, the exploding pagers and walkie-talkies in Lebanon, which killed or wounded 3,000 people, raise many questions and challenges for Egyptian security.
Adding to the challenges is the Egyptian army’s reliance on importing communications engineering and cybersecurity systems technology from US and European companies that have investments in Israel. These companies include the French company Thales, a leader in the military industrial complex, which provides the Israeli army with special equipment and communication systems. It is the same company that provides the Egyptian army with communication systems and surveillance radars, the Arab Defence website has reported.
In light of this, it is logical that there are fears in Egypt about similar breaches affecting mobile phone users.
This has prompted Prime Minister Mustafa Madbouly to discuss ways to avoid such attacks, saying with reservations that, “It is not possible to go into technical details because it is a matter of national security, but the government looked into the events related to the breaches in Lebanon to find out exactly what happened, and we as a country have learned some lessons.”
One security expert, who requested anonymity, told me that the pager bombings will push countries in the region, especially Egypt, to reconsider and review their cybersecurity strategies, especially with the possibility of repeating such types of attacks, which can target electric cars or electronic devices, for example, in the future.
Egyptian information security expert Walid Hajjaj warned in a phone call with the “Hadith Al-Qahira” programme on Cairo and the People channel of the possibility of booby-trapping electric cars, as they can be controlled remotely.
Also, Hamad Al-Nabrawy, a member of the board of directors of the mobile division of Cairo Chamber of Commerce, warned in a call to Al-Hadath Al-Youm channel of the spread of counterfeit phones in the Egyptian market, their lack of supervision and the possibility of hacking them.
Egypt thus stands to lose a lot at all levels due to the continued security and military deterioration in the region. These heavy losses will strain its financial and economic capabilities, and affect its national security and strategic interests. On top of all of that, Egypt might be in the line of fire if a regional war breaks out.
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