As oil prices climb, gas imports are disrupted, and the pound comes under renewed pressure, the conflict is emerging as a multifaceted challenge for an economy already navigating a delicate reform path.
In Egypt, indicators moved swiftly. Gas supplies from Israel were halted following the closure of fields; the government moved to accelerate the receipt of liquefied natural gas (LNG) shipments; and the dollar, along with other currencies, has climbed by approximately 2.6 percent against the Egyptian pound since the war began.
Within the first two days of the outbreak of war, the pound lost more than EGP 1.80, approaching the EGP 50 per dollar level for the first time since July 2025, before trimming its losses to close at EGP 49.17 for buying and EGP 49.27 for selling, according to data from the National Bank of Egypt.
Interbank activity also spiked. Trading volumes jumped 233 percent to $600 million, compared to $180 million the previous Sunday, signalling financing pressures linked to partial exits by some foreign investors.
Energy bill rises as alternatives cost more
The closure of Israel’s Leviathan field, part of whose gas passes through Egypt to meet domestic needs at a relatively low cost of $7–8 per million British thermal units (MMBtu), has forced Cairo to seek higher-priced alternatives ranging between $11 and $14 per MMBtu.
Speaking to Ahram Online, Mostafa Abu Zeid, director of the Egypt Centre for Economic Studies, explained that this price gap “will represent direct pressure on production and energy costs in the local market,” noting that securing alternative supplies at higher prices “is automatically reflected in the cost of goods and services.”
Global oil markets are also reacting. Brent crude rose two percent to $73 per barrel by the close of trading on 28 February 2026.
Barclays Bank expected prices to exceed $100 per barrel, with the possibility of reaching $150 if the Strait of Hormuz, through which about 20 million barrels per day pass, equivalent to one-fifth of global consumption, is closed.
Moreover, natural gas prices surged globally by about 50 percent after Qatar's announcement that it had halted the operations of its natural gas production in response to the Iranian attack on the state.
The most pessimistic scenarios suggest fuel price increases of up to 70 percent in the coming months, potentially approaching 100 percent if the war escalates and continues.
Inflation risks extend from fuel to food
The impact of rising energy prices extends beyond fuel to food production. Iran ranks among the world’s top five producers of urea fertilizer. During the previous war, the price of a ton of urea climbed from $380 to $450, a 16 percent increase.
At the same time, supply chain disruptions and higher shipping and insurance costs, particularly after French shipping group CMA CGM announced rerouting vessels via the Cape of Good Hope, are adding further burdens to production inputs.
Mohamed El-Shawadfy, professor of Investment and Finance, told Ahram Online that “the rise in global energy prices will be reflected in higher prices for imported goods, particularly from Europe and industrialized countries, placing an additional burden on the state budget, increasing production costs for the private sector, and opening the door to a new wave of inflation”.
He stressed that the inflationary impact is not merely domestic but “imported through production inputs,” deepening pressure on consumer prices.
Suez Canal revenues at risk
The Suez Canal, a vital maritime artery, is directly exposed to any disruption in the Bab El-Mandeb or Strait of Hormuz.
Abu Zeid warned that “rising risks for ships crossing from the Bab El-Mandeb region through the Suez Canal” could revive a scenario of declining revenues, especially as the canal “has not fully recovered from the repercussions of the recent war on Gaza.”
El-Shawadfy added that Houthi movements in Yemen could threaten the Bab El-Mandeb Strait, negatively affecting navigation through the canal during 2026 and putting pressure on state revenues and foreign currency reserves.
Mixed outlook for capital flows and remittances
On foreign currency inflows, the picture remains mixed. During the first 19 months following exchange rate liberalization, Egypt attracted around $30 billion in foreign investments in treasury bills, bringing the total outstanding balance to $45 billion by the end of last September.
Despite partial outflows in the early days of the war, bankers described these movements as “within safe limits.”
However, El-Shawadfy pointed to remittances from Egyptians abroad, one of the country’s key foreign currency sources, as another area of vulnerability.
Targeting Gulf countries could have negative repercussions for their economies, potentially affecting Gulf investments in Egypt and Egyptians’ ability to save and transfer funds.
He noted that rising living costs in the Gulf or disruptions in certain sectors “could lead to workforce reductions or the return of some Egyptians, negatively affecting remittance proceeds.”
Abu Zeid echoed this concern, arguing that targeting residential and commercial areas in the UAE, Kuwait, Bahrain, and Qatar “raises the fear index and affects economic activity,” threatening remittance flows if the conflict is prolonged.
Monetary policy faces difficult choices
If inflationary pressures intensify, attention will shift to the Central Bank of Egypt (CBE). Although the bank has begun a monetary easing cycle to stimulate investment and growth, renewed inflation could force a reassessment.
Abu Zeid said rising inflation “may push the Central Bank to adopt tightening decisions by moving toward raising interest rates,” prioritizing price stability over short-term investment momentum.
El-Shawadfy suggested that the global environment could also prompt the US Federal Reserve to tighten policy again, requiring Egypt to re-evaluate its own interest rate trajectory, particularly given the sensitivity of local debt instruments to foreign capital flows.
The policy trade-off remains delicate: higher interest rates may support currency stability and curb inflation, but they also increase financing costs and weigh on small and medium-sized enterprises.
Wider global impact
El-Shawadfy argued that the conflict is not merely political but part of a broader struggle over influence, energy, and the reshaping of the global economic order.
Any closure or threat to the Strait of Hormuz would not only push oil prices higher but also trigger a comprehensive repricing of risk, potentially leading to economic slowdown or partial recession in 2026.
Abu Zeid added that renewed supply chain disruptions and rising shipping and insurance costs could drive a new wave of global inflation, pushing central banks back toward tightening after years of grappling with the fallout from the Russian-Ukrainian war.
For Egypt, as an emerging economy reliant on imports for a significant share of its needs, global inflation translates into imported inflation and added pressure on the current account and state budget.
A complex economic test
Between currency depreciation and higher oil prices, partial capital outflows, and $45 billion in accumulated foreign investments, the Egyptian economy faces a multifaceted challenge.
Both El-Shawadfy and Abu Zeid agree that risks are mounting, from more expensive energy and rising inflation to potential pressure on Suez Canal revenues and possible shifts in monetary policy.
However, they emphasize that the scale of the impact will ultimately depend on the duration and geographic scope of the war.
If the confrontation remains short and contained, the effects may be limited to a manageable wave of turbulence. If it expands and persists, pressures could extend from the foreign exchange market to the state budget, with broader implications for investment and growth.
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