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Al-Ahram Weekly
9 hours ago
- Business
- Al-Ahram Weekly
Securing power - Economy - Al-Ahram Weekly
Oil and gas prices remain highly sensitive to geopolitical tensions, a pattern observed repeatedly over the decades from the October 1973 War to more recent events such as Russia's invasion of Ukraine in 2022. The military escalation between Israel and Iran on Friday serves as a stark reminder of this volatility, with crude oil prices surging by seven per cent to $78 per barrel before easing to approximately $73 by Monday evening. The percentage increase is not scary, as the current levels are almost $10 lower than prices at the start of the Russia-Ukraine war. Nevertheless, the difficulty in predicting possible future scenarios has sent ripples through the energy markets, resulting in observers putting their estimates for the price of oil during the next period anywhere between $75 and $120. On Sunday, the first working day in the local bourse and banking sector since Israel's attacks on Iran, fears of pessimistic scenarios weighed on transactions in the local currency as well as on the Egyptian Stock Exchange (EGX). The EGX lost LE94 billion of its market capitalisation, with all the indices ending in the red. The exchange price of the Egyptian pound dipped from under LE50 per dollar to cross the LE51 per dollar threshold before settling back at around LE50.2 on Monday. Foreign investors abandoning Egyptian equities and the currency for safer havens is the reason behind the drop. 'If the conflict continues, the world will witness violent price fluctuations. In a worst-case scenario, which is Iran blocking the vital Hormuz Straits, global markets will suffer a daily loss of some 18 to 20 million barrels of oil per day. Prices could go up to $120 per barrel or more. Some analysts talk about $150 per barrel for benchmark Brent crude,' said Nehad Ismail, an oil expert living in London. Being a net importer of gas due to a decline in national production from the Zohr Gas Field and an increase in the demand for power during the hot summer months, the possibility of such a jump in prices is not easy to live with. Egypt's gas deficit (the difference between production and consumption) amounts to 3.5 billion cubic metres per day, with Israel contributing one billion cubic metres of this. Cairo fills the remaining deficit of approximately 2.5 billion cubic metres through imported liquefied natural gas (LNG) shipments that are converted to a gaseous status and then pumped into the national grid. To cover the demand-supply gap and avoid load-shedding plans with power cuts that last for hours, Egypt has become dependent on Israeli gas being exported through pipelines. However, the two gas fields that cover Egypt's demand, the Chevron-operated Leviathan and the Greek firm Energean's Karish, suspended production a few hours after the beginning of the reciprocal attacks. Soon after the closure, Prime Minister Mustafa Madbouli announced that Egypt has activated emergency plans to prevent electricity cuts. Power stations have ramped up their use of fuel oil to maximum available levels, a Ministry of Petroleum statement said, and some plants are being switched to diesel to help protect the stability of the gas network and avoid load reductions. Moreover, fuel reserves have been doubled compared to last year, said the prime minister, adding that additional supplies are being arranged to support continued electricity production through the summer. Since last year, the government has promised several times that this summer will witness no power cuts, an aim which it has worked hard to reach. Egypt's power needs represent two-thirds of overall gas consumption. Egypt has already taken steps to avoid acute shortages of gas. It has agreed to buy LNG from suppliers including Saudi Aramco, the Trafigura Group, and the Vitol Group over two and a half years. The deals will bring in as many as 290 cargoes of LNG starting next month, all aimed at cutting Egypt's reliance on volatile spot markets. They are priced at a premium to the European gas benchmark, according to a Bloomberg report on Thursday. Egypt has also finalised contracts to lease Floating, Storage, and Regasification units (FSRUs). Madbouli said Egypt has secured three floating gas regasification vessels. According to the State Information Service website, one of these units is being prepared in Ain Sokhna to begin operation by the end of June and another will follow in July. The government is acquiring the plants to handle the hundreds of LNG shipments from a variety of sources and intermediaries that will help alleviate shortages during the difficult months of summer. $3 billion worth of contracts have been signed to import sufficient LNG to see the country through the summer. Paying more for imports means that the country's trade balance will show a deficit, and the budget's deficit will not be at a conservative seven per cent, as the value of energy subsidies, halved in the 2025-26 budget, will increase again. Egypt is committed to ending fuel subsidies by the end of this year under its agreement with the International Monetary Fund. * A version of this article appears in print in the 19 June, 2025 edition of Al-Ahram Weekly Follow us on: Facebook Instagram Whatsapp Short link:
Mada
4 days ago
- Business
- Mada
How will the Israel-Iran war affect the Egyptian economy?
The Egyptian economy continues to tremble with uncertainty in the face of the widening regional war escalated when Israel attacked Iran on Friday night. By the end of Sunday's trading session, the stock market's main indices declined, with total losses amounting to LE93 billion. The Egyptian pound also weakened, reaching a value of LE51 to the dollar, compared to nearly LE49.8 last week. As the war continues, Egypt faces a series of profound economic repercussions, sources in the Parliament and domestic banking and financial sectors told Mada Masr, marked most prominently by the exit of hot money from the country. Hot money is still the main factor propping up the pound's value, and if it goes, exchange rates will fall and, combined with global price hikes on oil and natural gas, Egypt could see a new wave of inflation. Hot money withdrawal Investors already began to withdraw hot money from the domestic market on Sunday. A hot money outflow ranging from US$3 billion to US$4 billion is expected this week, a financial analyst at an investment firm told Mada Masr. The forecast was echoed by Mahmoud Sami, a member of the Senate Financial and Economic Affairs Committee, and Saad Ali, a financial analyst at Okaz Investments. The three sources also expected that the withdrawal of hot money could cause the exchange rate to rise to a rate LE52 to LE52.2 per dollar. Egypt's risky reliance on hot money was laid bare following Russia's invasion of Ukraine, when investors withdrew nearly $22 billion out of Egypt to seek safer debt markets. The resulting capital flight triggered a severe foreign currency crisis that persisted for two years, during which the dollar surged from LE15 to LE50. Current estimates place the amount of hot money in Egypt's bond market at $30 to $35 billion, according to the three sources. Hot money inflows are a key pillar in maintaining the stability of dollar liquidity and ensuring the availability of foreign currency in the economy — a factor that has been reflected in the relatively stable exchange rates over the past several months. Exchange rate and futures exchange The price of the dollar began to rise on Sunday, posting a rate of LE50.56 compared to LE49.5 before Israel's attacks on Iran, according to central bank data. A sharper rise was recorded in other Egyptian banks on the same day, with the price of a dollar reaching LE50.87 in the Abu Dhabi Islamic Bank. The exchange rate then slightly stabilized on Monday, dropping by 0.33 points to LE50.23. Rates on Credit Default swaps (CDs) were also negatively impacted, rising to 560.3 points and marking a 12 percent increase compared to rates ahead of the Israeli aggression on Iran. The pound's one-year forward exchange rate, also known as Non-Deliverable Forwards (NDFs), rose as well from LE58.80 to LE60 per dollar on Sunday, financial analysts told Mada Masr. Oil and fertilizer prices In addition to the rise in the pound's exchange rate, oil prices surged by seven percent after Israel attacked Iran. On Friday, prices peaked at $77 per barrel, up from around $60 at the start of June, before stabilizing around $70. The spike followed Israeli strikes on Iran's oil and gas fields, which account for nearly 11 percent of total production by OPEC oil-exporting countries. Natural gas prices also saw a rise by nearly 13 percent following the regional escalation. Israel's decision to halt its natural gas supply to Egypt in late May prompted the government to cut gas supplies to fertilizer factories, leading to a suspension of their production and, consequently, their exports. While this comes amid rising global prices and a halt in local market supplies, summer season crops —which began last month — will not be affected, Hatem Naguib, head of the Federation of Egyptian Chambers of Commerce Vegetable and Fruit Division, and a former Agriculture Ministry advisor told Mada Masr. Both sources, however, said the situation could become concerning if the halt in fertilizer production drags on, warning it could lead to a shortage of fertilizer supplies at the start of the winter season and consequently drive up prices. Higher insurance costs for shipping A rise in maritime transport costs has also been recorded, which translated into higher insurance costs for shipping due to the increased risks of an escalating Israeli-Iranian war, former member of the Suez Canal Authority Wael Kadoura told Mada Masr. The hikes come as 80 to 85 percent of Egypt's total imports are transported by sea, Kadoura noted, warning that continued military escalation between Israel and Iran could worsen the crisis of shipping companies avoiding the Suez Canal and increase the likelihood of re-routing via the Cape of Good Hope. Fees levied on vessels passing through the Suez, which links the Red Sea and the Mediterranean, form a key component of Egypt's budgetary resources. These revenues have already taken a hit, with the central bank recording a 24.3 percent drop in receipts for FY 2023/24 due to maritime disruptions stemming from Houthi attacks aimed at deterring Israel's ongoing war on Palestinians. A boost to inflationary pressures The rise in both the exchange rate and in commodity prices globally, paired with the increased costs of insurance on shipping, will increase the pressure on the general budget, the MP and two financial analysts explained, and deepen the rise in inflation rates, which have already been witnessing a rise over the past three months due to fuel price increases. According to the sources, the government plans to raise fuel and electricity prices again at the start of the upcoming fiscal year in July, in line with International Monetary Fund conditions tied to Egypt's US$8 billion loan program. Energy prices have already been raised multiple times in recent years under a plan to phase out subsidies by the end of 2025. A source in the House of Representatives Planning and Budgeting Committee told Mada Masr on condition of anonymity that the recent regional escalations have sparked renewed talks with the IMF. According to the source, the fund has shown some flexibility on the timeline for reaching cost-recovery pricing if global oil prices continue to rise. However, this flexibility does not apply to the upcoming consumer price hikes, he noted. Consumers have been affected by a noticeable rise in inflation rates during the past three months, after nearly four months of a slowdown in inflationary pressures. In May, inflation witnessed the sharpest rise in eight months, with a 16.5 percent increase compared to the same month last year and a 1.8 percent hike compared to April. Analysts pointed to energy prices as the main factor behind the surge. In televised statements on Monday, attempting to appease the public amid the regional escalations, Cabinet spokesperson Mohamed al-Homsany reiterated the government's commitment to its 'promise' not to raise fuel prices before October, though he acknowledged that global fuel price fluctuations, especially amid the Israel-Iran escalation, will likely impact efforts to contain inflation rates. The two financial analysts agreed that the current regional escalations and their repercussions on the Egyptian economy will likely prompt the central bank to hold off on the monetary easing policy it has been aggressively pursuing in April and May. They therefore predicted that the central bank's Monetary Policy Committee will fix interest rates in their upcoming meeting to preempt further inflation.
Egypt Independent
27-03-2025
- Business
- Egypt Independent
Egypt announces three more fuel price hikes by end of 2025
Egyptian Prime Minister Mostafa Madbouly announced that the government will continue implementing its plan to gradually lift fuel subsidies until the end of 2025. During a Wednesday press conference at the Cabinet headquarters in the New Administrative Capital, Madbouly denied any intention by the government to eliminate the remaining subsidies in one go. He pointed out that the government has adhered to its previous commitments and that the period from October 2024 to March 2025 did not witness any price adjustments – in line with the promise not to increase prices for six months. The government is monitoring the daily price movements of goods in the markets, he added, stating, 'Our goal is to stop the bleeding of subsidies while maintaining cross-subsidization for some products such as diesel and butane cylinders.' According to Madbouly, these upcoming increases will be determined by the automatic pricing committee for petroleum products, which will hold its next meeting in April. There will be three additional increases until December, with rates not exceeding 10 percent each time, according to estimates by economic experts. The Prime Minister stressed that the government is seeking to mitigate the social impact of these increases, referring to the social protection packages recently announced, including salary and pension increases that will begin in July with the new fiscal year. He affirmed that diesel, the lifeblood of transportation and industry, will continue to receive partial subsidies even after the plan ends given its direct impact on commodity prices. Economic pressures The Egyptian government's statements come amid increasing economic pressures facing Egypt, as the government seeks to reduce the subsidy bill, which exceeded LE154 billion (US$3.02 billion) in the fiscal year 2024/2025, according to data from the Ministry of Finance. Egypt relies on imports for about 40 percent of its fuel needs, making it vulnerable to fluctuations in global oil prices and the exchange rate, where the dollar has reached about LE51 in the official market. The government began its economic reform program in cooperation with the International Monetary Fund in 2016, which includes gradually lifting energy subsidies to reach fair pricing by the end of 2025. In 2024, fuel prices witnessed three increases, the latest of which was in October, when the price of 95-octane gasoline rose to LE17 per liter and diesel to LE11.5.
