Prime Minister Mustafa Madbouli has warned that Egypt would be forced to adopt a “war economy” if a war erupted in the region anytime soon.

“The situation is changing daily and the region is experiencing a state of extreme uncertainty,” Madbouli told a press conference on 9 October.

“It is not an exaggeration to say that we do not know what will happen two or three hours from now. During this meeting, a drastic change could occur that would impact us for decades to come.”

Oil prices have seen a 10 per cent increase over the past week, he said, adding that the price could jump to over $100 a barrel if things continue to escalate.

Madbouli also said the Suez Canal is reporting losses of up to $550 million a month due to ongoing regional tensions and the attacks on ships in the Red Sea. Due to these tensions, Madbouli said Suez Canal revenues dropped by 60 per cent in the past six months, or from $850 million monthly to $300 million.

As a result, if the region were to face a regional war, Madbouli said, there would be severe repercussions and the state would consequently have to deal with what can be described as a “war economy” — whether it likes it or not.

Therefore, he added, it is essential for the state to focus on ensuring the continuity, stability, and sustainability of providing goods, services and infrastructure for Egyptian citizens under the current circumstances.

The prime minister urged citizens and government officials to recognise the seriousness of the current situation, emphasising the need for greater fiscal discipline and rationalisation of the use of resources. He also stressed the importance of preparing for “worst-case scenarios” by reducing unnecessary expenditures and consumption. This proactive approach will enable the government to develop effective strategies to address any challenges that may arise.

Madbouli also said he had assigned specific tasks to the ministers of petroleum, electricity, finance, and the Central Bank of Egypt (CBE) governor to safeguard the Egyptian economy and minimise the negative effects of a potential regional conflict to “the greatest extent possible”. He said “we must be ready to face all scenarios because a war that the region may witness will have an impact on logistical supplies and the provision of oil and gas shipments, not to mention major repercussions on transportation costs.”

Madbouli’s statement came as Israel’s war in Gaza and Lebanon escalated in recent days. The Israeli military pushed ahead with a large-scale operation in northern Gaza and a ground offensive in Lebanon against Hizbullah militants. Iran, a supporter of Hamas in Gaza and Hizbullah in Lebanon, struck Israel with hundreds of missiles on 1 October. Israel has vowed to retaliate with a lethal and surprising attack. Iran warned that any strike from Israel targeting the country’s structure would be met with stronger retaliation.

Political observers fear that an Israeli-Iranian war will hike oil prices to unprecedented levels and affect the passage of ships and oil tanks moving through the Arabian Sea, the Gulf of Oman, and Straits of Hormuz.

They also warn that a full-fledged war in the Middle East could disrupt global food supply chains and trigger a big rise in world prices of wheat. Egypt is the world’s number one importer of wheat. All of these developments, said observers, will exert huge pressure on Egypt’s financial and foreign exchange resources.

Madbouli’s statement about a “war economy” triggered apprehension among political and economic observers.

MP Abdel-Moneim Imam, deputy head of parliament’s Budget Committee, said Madbouli’s statement may signal a government’s intention to exploit a regional war to raise prices of basic goods and services and further devalue the Egyptian pound.

Mohamed Anis, a member of the board of the Egyptian Society for Political Economy and Legislation, said “a war economy means that the state is at war and that all the country’s resources are mobilised to meet primarily the needs of the Armed Forces. “This also means that under a war economy the state might resort to suspending expenditure on infrastructure projects and other basic services, particularly in the education and health sectors,” Anis said.

Ziad Bahaaeddin, a former deputy prime minister and economic analyst, said Madbouli’s use of the term “war economy” could force citizens to stockpile goods lest they face a sudden and big increase in prices and a drop in supplies.

In response, Mohamed Al-Homsani, the cabinet’s spokesperson, clarified in a TV interview that what the prime minister meant by using the words “war economy” was that “the government could resort to taking exceptional economic measures to fend off any drop in food supplies”. Al-Homsani recalled that when the coronavirus pandemic hit the world in 2020, many countries, including Egypt, took several exceptional measures such as importing goods from different sources and building up the country’s strategic stock of basic products and commodities.

According to Al-Homsani, by using the term “war economy” the prime minister also wanted to send a message of reassurance to citizens that the state is ready to deal with all scenarios and that it has emergency plans to address any repercussions.

Amr Suleiman, a professor of economy at Helwan University, said that “although it is not expected that Egypt will be in a state of war, the breakout of a war in the Middle East will severely impact its economy and this is what the prime minister meant by using the term “war economy.”

“In such a scenario Egypt will turn into an emergency economy in which the state might resort to taking exceptional measures such as banning imports of luxurious and non-essential goods, reducing consumption and exercising strict control on retail markets to prevent a spike in inflation,” Suleiman said.

Suleiman said he did not expect that an all-out war in the region will impact the flow of tourism and foreign investments into the country. “The one-year-old war in Gaza has only impacted the Suez Canal; it did little to prevent the flow of investments and tourism,” Suleiman said.

Suleiman also agreed with Al-Homsani that Madbouli’s statement sends a message of reassurance to local and foreign investors alike, stating that Egypt is preparing for all scenarios and that it is leaving nothing to chance.

* A version of this article appears in print in the 17 October, 2024 edition of Al-Ahram Weekly