Explainer: All you need to know about Russia-Ukraine crisis’ impacts on Egypt

Ahram Online , Thursday 24 Feb 2022

As Russia launched Thursday a wide-ranging attack on Ukraine, many potential economic impacts are looming not only for Europe but also for Arab countries, including Egypt.

File Photo: Russian tourists in Sharm El-Sheikh, South Sinai. AFP
File Photo: Russian tourists in Sharm El-Sheikh, South Sinai. AFP


Below, Ahram Online tries to shed light on the expected impacts of the Russian-Ukrainian crisis on Egypt, especially the flow of wheat imports, petroleum prices and tourism, and what the government is doing to mitigate any harms.

Is wheat at risk?

Egypt – one of the world’s top wheat importers – gets around 80 percent of its wheat imports from Russia and Ukraine together. The crisis may directly threaten these deliveries.

Egypt, whose current strategic wheat reserves are sufficient to cover the coming four months, is anxiously waiting for the local wheat supply season that starts in mid-April to augment its total stock to cover more five months, approximately until next November, according to officials' estimates.

The North African country is also setting its eyes on 14 alternative markets recommended by local agricultural bodies – including non-European countries like the US, Argentina, Canada and Paraguay – to meet its grain needs.

That is not all; another major concern is that the current escalation may drive up wheat prices across the board, Egypt's Cabinet Spokesperson Nader Saad told the media on Wednesday.

Russia and Ukraine together account for nearly 30 percent of the world’s wheat exports.

Saad called upon citizens to rationalise the consumption of bread loaves to the spare the country – which provides tens of millions of Egyptians with subsidised bread – any disruption of wheat supply in light of the conflict.

The country, over the long run, is pushing ahead with domestic what production, aiming to increase agricultural land nationwide by 2 million feddans over the next two years, Egyptian president Abdel-Fattah El-Sisi said on Wednesday

The efforts are in line with the country's plan to expand its reliance on local agricultural production.

In 2021, Egypt imported 5.5 million tonnes of wheat, on top of 3.5 million tonnes from local farms. Egypt also forecast wheat imports in 2022 to drop to 5.3 million tonnes due to an increase in local production.

What about Tourism?

Tourism, Egypt's main source of hard currency is vulnerable to fallout from the conflict as well, according to local and international experts. Prior to the coronavirus pandemic, the country’s tourism revenues accounted for up to 15 percent of the gross domestic product (GDP).

Russia and Ukraine are major sources of tourists for Egypt. This number could decline if the conflict persists, dealing a serious blow to the sector only recently beginning to recover from the coronavirus pandemic.

Egypt has been witnessing a gradual recovery in the tourism sector since last summer, with the country hoping to achieve the rates of the pre-pandemic number of tourists, which stood at about 13 million in 2019.

Thanks in part to the resumption of direct flights from Moscow to Sharm El-Sheikh and Hurghada in August 2021, more than 700,000 Russians visited Egypt in 2021. The first two weeks of 2022 alone saw the arrival of 125,000 Russians.

The resumption of Russian flights to the coastal Egyptian cities came after a hiatus since 2015 over a Russian plane crash over Sinai, before which some 3.3 million Russians visited Egyptian Red Sea Resorts in 2014.

Ukrainians have also significantly contributed to the Egyptian tourism sector, with up to 1.2 million tourists visiting Egypt from July 2020 to July 2021.

In a pre-emptive step, the Egyptian government is doubling efforts to lure alternative tourism markets to soften the expected influence of the ongoing Russian invasion, according to a cabinet statement on Wednesday.

Oil prices vs. Egypt's budget

Egyptian officials are also monitoring the rise in oil prices following the invasion, since any increase could put pressure on the Egyptian state’s budget.

The local cost of the state subsidised petroleum products could increase due to the conflict, the cabinet spokesperson pointed out.

Since 2019, Egypt has been reviewing and adjusting local fuel prices quarterly through recommendations of Fuel Automatic Pricing Committee. These adjustments are based on the international price of oil, the cost of production and the exchange rate of the Egyptian pound against the US dollar.

In recent years, Egypt has raised gasoline prices several times, the last of which was by 25 piasters earlier this month.

The government has introduced several strategies to lessen reliance on fuel products, which cost the state budget a lot of money, including converting petrol-powered vehicles to run on natural gas, of which Egypt achieved unprecedented production rates in recent years.

The boom in the North African country's gas production has been supported by huge gas discoveries and production, the biggest of which is the giant Zohr field in the Mediterranean, which was discovered in 2015 and is believed to be the largest-ever gas discovery in Egypt and the Mediterranean.

Opportunity looming

The conflict, on the other hand, may help Egypt’s plan to become a major supplier of the liquefied natural gas (LNG) since Russia is the world's current leading gas exporter, according to experts.

The Russia-Ukraine crisis poses a direct threat to natural gas supply to European countries, since up to 40 percent of Europe's natural gas needs reportedly come from Russia.

In 2020, Russia exported more than 40 billion cubic meters (bcm) of LNG and over 197 bcm of pipeline gas.

If this supply is threatened, Europe may turn their eyes to Egypt to fulfil their natural gas needs.

Days prior to the ongoing war, European Union Energy Commissioner Kadri Simson held talks on energy cooperation opportunities with Minister of Petroleum and Mineral Resources Tarek El-Molla, including "in the short- and medium-term on LNG." Simon stressed on her Twitter account that "Egypt is a key partner for the EU.”

Egypt, which achieved self-sufficiency in natural gas in 2018, is planning to use its position on Europe’s doorstep to become a major supplier of liquefied natural gas to the continent, which is transitioning away from other fossil fuels.

Egypt has the infrastructure for the transport and handling of natural gas, with a main network of 7,000km of pipelines, as well as a distribution network of 31,000km and 29 gas-treatment plants in addition to the two LNG facilities it owns.

Egypt’s two LNG export facilities are Idku and Damietta plants, from which, according to S&P figures, the Shell-operated Idku facility produces 7.2 million tonnes per year (mt/year), while the Eni-operated Damietta plant produces 5 million mt/year.

El-Molla stated earlier this month that Egypt's natural gas exports are expected to rise to 7.5 million tonnes by the end of 2021/2022 fiscal year.

The total amount of natural and liquefied gas exports reached 3.5 million tonnes during the first half of current fiscal year, the minister said, meaning that Egypt’s natural gas exports will jump by roughly 4 million tonnes during the second half of 2021/2022 FY.

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