Strategic Risk Brief: Political Risks in Egypt from the Iran War
Egypt is exceptionally vulnerable to non-payment and instability
The Iran war is hitting the global economy on every front. Chemicals, and therefore manufactured goods, automotives, medicines, and others, fertilizers, and therefore every food commodity, energy, and therefore every single product and service, are all rising in price.
As discussed in a previous assessment, there is no reason to expect the war to end soon, though Trump retains the option of trying to walk away.
In this piece, we examine some of the most vulnerable countries and the issues they face.
Egypt: Heading towards a failed state?
Egypt is a net energy importer, which received natural gas by pipeline from Israel, and subsidised liquified natural gas from Qatar. Both sources declared force majeure due to the war, leading to immense shortages that can only be replaced with very expensive LNG. Furthermore, Egypt is one of the world’s largest grain importers, the prices of which are set to spike. And it depends on USD5 billion every year from the UAE to maintain the stability of its balance of payments. Furthermore, Egypt relies on extensive capital inflows into its bond and stock markets, which are very vulnerable to sudden withdrawals. Last, Egypt depends on remittances, much of which come from the GCC. With the Gulf economies paralysed, these are set to fall suddenly. Not to mention the possibility of the Houthi shutting down the Red Sea, driving a large drop in Suez Canal revenues. The general insecurity in the region is likely to hit tourism, another key foreign currency earner.
