Since 2016, and as a part of the IMF-backed reform program, Egypt opted to reducing fuel subsidies, driving up energy prices and reshaping not only household spending but also the costs incurred by key industries—most notably petrochemicals, one of the country’s most strategic and fastest-growing sectors.

The petrochemicals industry accounts for roughly 12% of Egypt’s industrial output and generates annual revenues of around $7 billion (approximately EGP 354.76 billion). It contributes nearly 3% to the national GDP, according to data from the Information and Decision Support Center (IDSC).

Covering a wide range of products-from plastics and rubber to detergents, paints, fertilizers, and glass- petrochemicals form a critical backbone of Egyptian industrial sector. But with rising fuel costs, the question now is: how will this vital sector adapt to subsidy cuts, and what key challenges lie ahead in the future.

Surviving Fuel Subsidies Cuts

Hit by soaring debt, spiraling inflation, and a shortage of foreign currency, Egypt turned to the International Monetary Fund (IMF) in 2016 for support in stabilizing its economy through a series of prescribed reforms. That November, the IMF approved a $12 billion loan under a three-year Extended Fund Facility. But the deal came with tough conditions—chief among them, a commitment to phase out fuel subsidies by 2025.

Originally, the agreement set 2019 as the deadline for completing subsidy reforms. However, the government adopted a gradual; elimination of subsidies with an accelerated pace since 2022 when the government signed a new deal with the IMF. In the fiscal year (FY) 2025/26 budget, the sum allocated to fuel subsidies was halved to EGP75 billion compared to the previous fiscal year. According to government sources, Egypt now aims for full elimination of fuel subsidies by December 2025, sparking concern over the potential impact on industries and households.

Still, former Petroleum Minister Osama Kamal remains unconcerned.

He argues that the sector is largely shielded from the impact of subsidy reforms. “The government does not subsidize fuel for value-added industries, including petrochemicals, and instead sell gas to these industries according to a unified tariff,” he explained. As a result, the price of gas supplies remains mostly insulated from fluctuations in international oil markets, since tariffs are based on rates set by the government for industrial use.

Not only is the sector protected, but it’s also expanding. According to the IDSC, petrochemical production capacity reached 4.2 million tons (mmt) annually in FY 2022/23, up from 4.1 mmt in FY 2018/19.

The Unclear Policies Hurdle

While fuel subsidy cuts may not hit Egypt’s petrochemicals sector as hard as other industries, investors face a different set of challenges. “The real issue lies in investment laws and incentives,” said former Petroleum Minister Osama Kamal. “Unlike exploration and production (E&P), which are protected by agreements ratified by Parliament, petrochemicals fall under general legislation that can change frequently, making the sector vulnerable to tax hikes and regulatory shifts.”

Petrochemical projects are by nature large-scale and capital-intensive, yet both local and foreign investors have long found the legal framework governing the sector unclear and inconsistent. This ambiguity, persisting for over two decades, often causes hesitation among investors before committing to new ventures.

Still, Kamal believes Egypt remains competitive with Gulf producers, who are typically seen as having an advantage due to cheaper raw materials.

According to Kamal, Egypt holds three key advantages: relatively low labor costs compared to the Asian work force relied upon by Gulf countries, a strategic geographic location, and a wide network of trade agreements. These include the EU–Egypt Association Agreement and membership in COMESA (the Common Market for Eastern and Southern Africa), both of which offer customs exemptions and other preferential terms for Egyptian exports to European and African markets.

A growing challenge for Egypt’s gas industry is the supply instability. Since 2022, output from the Zohr field—Egypt’s largest—has declined due to technical issues and foreign operators scaling back amid unpaid government dues caused by a dollar shortage. Imports from Israel, which covers 15–20% of Egypt’s demand, are also vulnerable to geopolitical shifts. For example ,in June 2025, Israel halted exports during its conflict with Iran, prompting Egypt to suspend gas supplies to petrochemical and fertilizer companies.

Fertilizers in Focus

Amr Ragai, Equity Research Analyst at Al-Ahly Pharos, echoes Kamal’s view that Egypt’s fertilizer sector remains resilient. Strong global demand for key products like urea and phosphates continues to drive growth. However, Ragai points out a critical nuance in how fertilizer companies operate.

“Fertilizer producers purchase natural gas at a fixed formula—$4.5 per thermal unit at minimum, compared to the standard $8.5. I’d call that a subsidy, or at least a significant discount,” he explained.

Subsidies in the fertilizer sector function on two levels: the reduced price companies pay for natural gas they get from the government, and the controlled price at which farmers buy urea from these producers. Producers are required to allocate 55% of their output to the government, though the actual quota may fluctuate with the remaining quantity being allocated for export.

As of mid-2024, the Egyptian government has been considering raising the subsidized fertilizer price to approximately EGP 6,250 per ton, a 30% increase from the previous price of EGP 4,800 per ton.

Given this pricing structure, Ragai rules out an imminent full removal of subsidies, noting that such a move would put fertilizer companies in a difficult position—unless accompanied by a corresponding rise in fertilizer prices.

“The sector has performed strongly over the past quarter and hasn’t shown any signs of stress, despite broader economic instability,” he said. “Fertilizer companies are remarkably resilient, and I believe the government will approach subsidy cuts cautiously and with careful consideration for this vital industry.”

The Everyday Power of Petrochemicals

Ahmed Moharram, Founder and Managing Director of Anchorage Investments Ltd.—whose portfolio includes the $2.5 billion Anchor Benitoite petrochemicals complex in the Suez Canal Economic Zone—believes the petrochemicals industry must be actively protected and supported.

“The petrochemicals, chemicals, and fertilizers sectors in Egypt are poised for significant growth in the coming years,” Moharram said. “This progress will be reflected in rising export volumes, which have already shown strong momentum, underscoring the strategic importance of these industries to the national economy.”

He highlighted the sector’s deep integration into daily life, with applications spanning healthcare, construction, and household goods such as packaging, carpets, and furniture. Moharram warned that any disruption in petrochemical production would quickly affect the availability of these essential products.

Echoing this, Amr Ragai emphasized that sustaining Egypt’s competitiveness in the global market requires practical measures—namely, the continuation of subsidies, which influence both direct and indirect production costs, and ensuring a stable supply of natural gas.