Six weeks of US-Israeli war with Iran have left supply chains fractured and driven up energy and food costs, fuelling inflation worldwide. With the truce in place, Egypt still faces a tough task as an energy importer: controlling inflation and adapting to a changed regional order.
Fewer than six weeks into the US‑Israeli war with Iran and the world is already facing energy shocks, supply‑chain disruptions, rising oil and food prices, and higher inflation. As an energy importer, Egypt is feeling these effects acutely.
The government has launched a series of measures to limit the damage, adopting hedging strategies different from those used during earlier crises such as the Russia‑Ukraine war and the Covid‑19 pandemic. The last two weeks in particular have shown the government changing course.
The Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) decided to keep interest rates unchanged at its periodic meeting on 2 April, maintaining a tight monetary stance. This came despite the local currency losing ground to the dollar, a situation previous CBE leaderships had addressed by raising rates.
Khaled Hamza, an investment analyst, told Al‑Ahram Weekly that the decision reflects geopolitical tensions, which are increasing international inflation and limiting demand for exports.
“Another reason is that the CBE is taking a breather to assess the effect of its applying a tightening cycle since April 2025 on the economy,” Hamza said.
The CBE has lowered interest rates six times in its last eight meetings and held the rate steady in two, including the most recent. It has also reduced the reserve requirement, the percentage of deposits that commercial banks must hold with the central bank, from 16 to 14 per cent.
Sara Saada, senior economist at CI Capital Holding, said that monetary policy is always linked to the inflation rate. Inflation in February stood at 13.4 per cent, up from 11.9 per cent in January, and March’s figure is expected to be higher, she said, reflecting the exchange‑rate decline and a 17 to 30 per cent rise in fuel prices.
According to an MPC statement, the positive real inflation rate — the difference between the interest rate and inflation — remains at comfortable levels at the current stage, and it will keep monitoring it if further developments dictate action, Saada added.
Hamza concurred, explaining that any move to reduce interest rates while inflation is rising would lower the real, inflation‑adjusted interest rate, making treasuries and certificates of deposit less attractive.
“I expect March’s inflation rate to come in at 15 per cent, and with interest rates currently at 19 to 20 per cent, this makes the real rate four to five per cent, which is still mildly attractive compared with other emerging markets,” he said.
However, lower interest rates make the pound less attractive adding to the currency’s woes. The currency fell to LE54.6 per dollar on Monday, marking a total decline of around 14 per cent since the conflict began. It is the world’s worst performer since the conflict erupted on 28 February, according to Bloomberg.
Macro-economic think tank Capital Economics noted that further significant declines in the currency would be worrying, but investors may take comfort from what the fall says about the CBE’s commitment to a flexible exchange rate and to avoiding the use of reserves to prop up the pound.
“Compare that to Turkey, for example, where the central bank’s defence of the currency has resulted in net foreign-exchange reserves more than halving over the past month while the lira has fallen by less than two per cent,” a Capital Economics note stated.
Saada agreed, noting that the MPC is targeting inflation, not the exchange rate, and that this is the right direction for the CBE to be heading in. Still, the decline in interest rates has prompted what Moody’s estimates as an $8 billion outflow in portfolio investments.
Egypt’s treasury bills had been a carry‑trade favourite with overseas investors because of its competitively high inflation‑adjusted interest rates. According to Bloomberg, Egypt’s real interest rate is among the world’s highest.
The $8 billion outflow is significant but small relative to the roughly $32 billion that the US bank Citibank estimated as the value of foreign holdings of treasury bills and bonds just before the crisis, as seen by Hamza.
The limited scale of the outflows reflects who exited the market, Hamza explained. Those who left had bought Egyptian treasury assets when the dollar was trading below LE50.
To make it clearer, he gave a numerical example. An investor who invested $1,000 when the exchange rate was LE46.5 received LE46,500 of assets; if he now uses that sum to repurchase dollars at LE54.6, he will recover only about $853, crystallising a loss.
Because selling would lock in such losses, most portfolio investors have chosen to remain in the market until they recover their losses. Conversely, new investors entering today would pay $1,000 to buy LE54,000, which is attractive especially in light of Egypt’s relatively high real interest rates.
“So, the current policy is both encouraging current investors to stay in the country and attracting new ones to enter the market,” he said.
“This time around, the CBE is managing monetary policy prudently and with skill, balancing exchange‑rate flexibility, reserve management, and market stability,” Hamza concluded.
However, Capital Economics warned that the longer the conflict drags on and the greater its impact on inflation and the country’s external position, the more likely the CBE will be forced to raise interest rates in its coming meetings.
To cushion the effects of expected inflation, the government has decided to raise the public‑sector minimum wage by LE1,000 to reach LE8,000 from July. This is in addition to a LE750 monthly bonus for all public employees and further salary hikes and bonuses for staff in the medical and education sectors.
Higher wages aim to offset the erosion of purchasing power caused by the pound’s depreciation, and annual salary rises are a normal response to inflationary pressures. The step will cost the government about LE100 billion.
However, the 14 per cent increase is “too little and too late”, according to the Egyptian Initiative for Personal Rights (EIPR), an NGO. In the light of the expected rise in inflation over the next four months, the real value of the minimum wage will continue to erode until the next increase, it said.
The EIPR calculates the national poverty line at LE8,964 per household per month, and the LE8,000 minimum wage exceeds the extreme poverty line (food‑only survival needs) by only LE1,500.
“Note that poor households spend mainly on basic food items, whose price increases have typically outpaced the overall inflation rate in recent years,” the EIPR added.
Meanwhile, the government is moving on several fronts to secure the country’s energy needs. Bloomberg reported that the Egyptian General Petroleum Corporation (EGPC) has reached an agreement with Libya’s National Oil Corporation to secure crude oil supplies amid disruptions in the Strait of Hormuz.
Under the agreement, Libya will supply Egypt with 1.2 million barrels of oil per month in two shipments to compensate for halted deliveries from Kuwait, which previously ranged between one and two million barrels per month. This should bolster crude supplies while the government pursues multiple import and financing channels to stabilise the market.
Moreover, gas flows from Israel’s Leviathan and Tamar Fields have returned to pre‑war levels, with about 1.2 billion cubic feet per day (bcf/d) now transiting the East Mediterranean Gas Pipeline, offering short‑term relief as Qatari liquefied natural gas (LNG) remains offline.
Qatar had agreed in January to supply Egypt with 24 LNG shipments to cover seasonal high summer demand for electricity, but significant disruptions from Iranian missile attacks on gas production facilities have put that agreement on hold.
Cairo is lining up spot cargoes and has ordered 20 LNG shipments for April to bridge demand ahead of the summer surge, according to the website Enterprise.
At the same time, the US Export‑Import Bank (EXIM) has agreed to insure over $2 billion to help US LNG reach Egypt until 2027. These shipments back contracts between the EGPC and the American energy trading company Hartree Partners. The US is Egypt’s largest LNG supplier.
Driven by ambitions to secure more regional imports, Egypt also signed a framework agreement with Cyprus on gas cooperation at the Egypt 2026 Energy Show. The non‑binding agreement will form a basis for future negotiations on exploiting Cyprus’ reserves.
The show also saw international energy companies announce plans to invest more in Egypt, including Emirati Dragon Oil, which said it will invest $3 billion.
In a parallel move to cut energy bills, the government has raised electricity prices for businesses and households in the highest consumption bracket. The first seven brackets for residential units are exempt from the rise, while the eighth will see a 15.7 per cent increase per kWh to LE2.58.
In an unexpected move amid the economic and geopolitical turbulence, Moody’s affirmed Egypt’s long‑term foreign and local currency issuer ratings at Caa1 with a positive outlook, citing progress on fiscal consolidation, stronger tax collection, and structural reforms.
“Rating agencies look at the creditworthiness of the country. They assess its ability to honour its obligations and its track record in repaying debts on time. Egypt has never defaulted on its debts, and thus it is normal that Moody’s did not move to downgrade the rating or the outlook,” Hafez said.
Moody’s, however, warned that the country remains highly exposed to external shocks, with escalating debt‑servicing costs eating into recent fiscal gains.
* A version of this article appears in print in the 9 April, 2026 edition of Al-Ahram Weekly.
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