Egypt braces for deeper economic wounds as US-Israel war on Iran drags on

Egypt has quickly started feeling the heat from the US-Israel war on Iran, with several sectors of the local economy receiving or expecting to experience fallout.

Economists expect these effects to exacerbate the woes of the national economy, especially if the war drags on for a long period.

The Egyptian stock exchange suffered direct impacts from the war on the first day of trading on Sunday, with shares sustaining massive losses across the board, putting traders on edge. Market analysts warn against a wave of stock selloff, highlighting the danger of additional loss entailed in such a move.

Israel, which supplies Egypt with between 15-20 percent of its daily natural gas needs in the light of multibillion dollar agreements between companies on both sides, has decided to suspend these supplies, citing security-related precautionary measures.

The supply suspension followed a decision by the Israeli minister of energy to temporarily shut down key offshore gas fields, including Leviathan and Karish.

In suspending supplies, Israel invoked the "force majeure" clause in gas supply contracts with the populous, energy hungry Arab state, a legal provision that allows the suspension of obligations without liability during extraordinary events, such as wars, military actions or other emergencies beyond the two parties' control.

Far from contained

The suspension of Israeli gas supplies has forced Cairo to redirect available gas resources to meet domestic needs.

This decision is expected to stoke supply shortages as it comes at a time of a marked decline in domestic production, something that has made Egypt obliged to raise dependence on imports.

Egypt also had to halt the supply of around 100 million cubic feet of gas to both Lebanon and Syria, which used to be pumped to the two Arab states on a daily basis through the Arab Gas Pipeline which connects Egypt to Jordan, Syria and Lebanon.

It also sent Cairo scrambling for alternatives, including through the acceleration of LNG imports, using stored fuels and raising readiness levels.

These developments come as Egyptian authorities take measures to prepare for the summer season which witnesses increased demand, particularly by the nation's power plants as Egyptians' electricity consumption reaches peak levels.

Despite their painful nature, these effects are so far the tip of the iceberg as the economy expects to sustain more painful blows if the war lasts for long, economists said.

"Sorry to say, the war will affect the Egyptian economy in direct and deep ways," Khaled al-Shafie, the head of local think tank, Capital Centre for Economic Studies and Research, said to The New Arab.

He added that the war proves regional geopolitical conditions to cut through internal economic conditions in a powerful manner, resulting in a situation where the effects of this war reverberate so strongly here.

Probably mindful of such effects, Egyptian President Abdel Fattah al-Sisi, who was attending a breakfast party with a host of public figures, media and army commanders on Sunday, asked his people to have patience.

"It is important that we stay united, persevere and understand circumstances," the Egyptian president said.

"We also need to understand that some things are out of our control," he added.

Making things worse

Effects from the war come as the Egyptian economy shows signs of recovery from a series of previous shocks, including Covid-19, the war in Ukraine and Israel's two-year genocidal war on Gaza.

Such international and regional developments have left a deep toll on the Egyptian economy, having disrupted international supply chains, increased pressures on the Egyptian pound and consequently raised the cost of imports.

Israel's war on Gaza impacted the Suez Canal, a vital source of national income, as the Iran-backed Houthi group in Yemen began attacking commercial shipping in the Red Sea and scarring shipping lines away from this vital artery to force a ceasefire.

Egypt says Houthi attacks caused Suez Canal revenues to fall sharply, depriving the economically-struggling state of billions of dollars in the two years of the Gaza war.

The current war in Iran is bringing the spectre of Houthi attacks back to the Red Sea, sending fears down the corridors of major shipping companies, some of which have already started ditching the Suez Canal for the longer Cape of Good Hope route.

If it materializes, the prospect of renewed Houthi attacks in the Red Sea will compound other expected effects on Egypt from the war, especially when it comes to the tourism sector which contributed 8.6% to the national GDP in 2025, specialists said.

"A long war will eventually negatively affect the local tourism sector, raising the possibility of cancelling a large number of the reservations made in the past months," independent tourism expert Magdi Selim told TNA.

He expressed fears that the temporary suspension of flights by international airlines would raise insurance and shipping costs as well as air tickets.

"This will of course negatively affect the flow of tourists to Egypt," Selim said.

Geostrategic fears

Moreover, Egypt shudders at the prospect of millions of Egyptian migrants in the Gulf losing their jobs as a result of Iranian attempts to drag Gulf countries into the conflict.

Instead of focusing on the countries attacking it, Iran has in the last few days staged sporadic attacks in Gulf Cooperation Council states, including the UAE, Saudi Arabia, Qatar, Bahrain and Oman, putting them at the centre of the conflict and raising fears about the future prospects of burgeoning economic migrant communities in them, including this of the Egyptians.

There are millions of Egyptian economic migrants in different GCC countries, who send tens of billions of dollars in remittances back home every year, keeping the national economy afloat.

In 2025, Egyptian economic migrants in the Gulf sent $41.5 billion in remittances back to their country, a 40.5% increase from the 2024 figure, according to the Central Bank of Egypt.

The uncertain prospect of the remittances adds to the pressures the Egyptian economy will receive as a result of the expected surge in oil prices in the international market, economists said.

The Egyptian Cabinet has decided to establish an operations room to closely monitor the developments of the war, effects on Egypt and recommend action for the concerned authorities.

Actual and expected effects from the war were probably why Egypt worked hard in the past few weeks to mediate a peaceful resolution of the conflict between the US and Tehran over Iran's nuclear activities, with the Egyptian foreign minister and president stepping directly into this row through contacts with officials on both sides.

The same efforts were also rooted in Egypt's strategic calculations and fears from the war opening the door for a radical change in the regional balance of power, one that turns Israel into the region's sole bully.

This comes as Israeli officials and opposition leaders and US officials step up talk about Israel's biblical right to lands in several Arab states, including in Egypt, within the "Greater Israel" vision.

Egypt was the first Arab country to sign peace with Israel in 1979, but the general feeling here is that Israel's pursuit of its biblical dreams will kill this current cold peace.

Such a fear was recently expressed by a retired senior Egyptian army commander who said Iran's collapse would significantly tip the regional balance of power significantly in favour of Israel.

"Egypt's turn will come next after Iran's collapse, especially after the collapse of Syria, Iraq and Lebanon," Gen. Samir Farag warned in an interview with a local television channel on Sunday.