Egypt among most ill-equipped to withstand Iran war energy shock long term

Egypt has raised domestic fuel prices and will begin curbing electricity use – not because it is the most exposed economy owing to an oil shock but because is among the least equipped to absorb one. Its vulnerability to fallout from the Iran war stems chiefly from its weak macro buffers, leaving it highly sensitive to rising import costs, currency pressure and fiscal strain.

According to the U.S. Energy Information Administration, flows through the Strait of Hormuz in 2024 and the first quarter of 2025 made up more than a quarter of total global seaborne oil trade and about a fifth of global oil and petroleum product consumption.

That makes any sustained disruption owing to the Iran war a direct threat to regional net importers such as Egypt, which has become more reliant on imported fuel as domestic gas production has declined from its 2021 peak, according to energy market data.

On March 10, Egypt raised domestic fuel prices by 14% to 17%, with diesel lifted to EGP20.50 per litre from EGP17.50. The petroleum ministry said the increase came in light of “the exceptional situation resulting from the geopolitical developments in the Middle East region and their direct effects on global energy markets.”

PM Mostafa Madbouly said on March 18 that domestic energy import costs had risen by between two and two-and-a-half times since the US-Israeli attacks on Iran. Its monthly natural-gas import bill had jumped from about $560mn before the conflict to roughly $1.65bn, while crude had climbed from $69 a barrel to nearly $110, and continues to rise.

The immediate shock had so far been manageable, but only with active policy intervention, IMF spokesperson Julie Kozack said on March 19. The “impact of the conflict on Egypt has remained relatively contained,” she said, adding that the authorities had taken “a proactive, timely, and well-coordinated response.” Exchange-rate flexibility had helped “preserve its foreign currency buffers, its international reserves,” she added.

As of March 28, in response to the Iran crisis, Egypt also plans to begin curbing some electricity use, including by requiring malls, shops and cafes to close earlier, turning off illuminated advertising billboards and reducing public lighting, Bloomberg reported.

The steps taken to date underline the government’s dilemma: whether to absorb higher energy costs on the budget or pass them through to households and industry. Short-term supply problems aside, Egypt’s vulnerability runs through the balance of payments, and the fiscal channel is tightening. Private-sector analysts see a meaningful budget impact either way.

Higher oil and gas prices lift the import bill just as Cairo remains dependent on foreign-currency inflows and International Monetary Fund (IMF) support. On February 25 – right before the conflict in Iran began – the IMF completed Egypt’s fifth and sixth programme reviews and the first review under the Resilience and Sustainability Facility, unlocking about $2.3bn in fresh disbursements and bringing total purchases under the EFF and RSF to about $5.2bn.

According to the Institute of International Finance, the additional cost of oil could increase Egypt’s expenditures by between 0.2% and 0.55% of GDP. That is significant for an economy already carrying a heavy debt burden, with interest payments alone accounting for roughly half of government spending this fiscal year.

The inflation risk is also material. The IMF’s rule of thumb is that every 10% rise in energy prices, if sustained for about a year, adds 40bp to global inflation and cuts output by 0.1% to 0.2%. For Egypt, where higher fuel costs feed quickly into transport, electricity and food prices, the pass-through can be especially sharp.

That is why Egypt stands out as fragile even if it is not the single most exposed oil importer. Its buffers are thin, its import dependence has increased, and its policy options remain constrained by debt, inflation sensitivity and the need to maintain investor confidence. If oil prices stay elevated and regional disruptions persist, pressure on the pound, the budget and domestic prices could intensify, according to IMF assessments and market analysts.

“As the war in Iran continues to impact—though not completely disrupt—global markets, much of the attention has understandably focused on energy supplies and Gulf countries, which have come under attack from Iran. However, market watchers should keep a close eye on Egypt as the proverbial canary in the coal mine,” writes Khalid Azim, director of the MENA Futures Lab at the Atlantic Council's Rafik Hariri Center for the Middle East.

“A financial disruption in Egypt would reverberate not only across the Middle East and North Africa but potentially across global markets as well. Egypt’s economy is large, systemically important within the region, and interconnected with global financial flows. In addition, for the United States in particular, Egypt holds significant geopolitical importance as a partner for stability in an already volatile region.”

Egypt’s external position (according to Hariri)…

• Total external debt: $169bn (approximately 40% of GDP)
• External debt service due in 2026: $27bn
• Projected current account deficit (baseline assumption): $15bn
• International reserves: $53bn (approximately five months of import cover)

… and domestic, fiscal position

• 2026 fiscal deficit: EGP 1.427 trillion ($27.2bn, or 6.8%of GDP)
• Total government expenditures: EGP 4.396 trillion pounds
• Interest payments: EGP 2.3 trillion (more than half of total expenditures)

“Egypt’s balance of payments outlook is driven largely by three variables: oil prices, tourism revenue, and remittances from Egyptians working abroad. The interaction of these variables will ultimately determine the trajectory of Egypt’s current account deficit and therefore its need for external financing,” Azim writes.