Current political events are greatly impacting the oil industry with the escalation of the conflict in Gaza led to a rise in oil prices, notable the price of Brent crude increasing by approximately 10%. Fears of supply disruption due to regional tensions, especially if Iran intervenes, are worrying markets. The continuation of the Russian-Ukrainian war further complicates the situation and will have widespread legislative implications, requiring major countries to take measures to deal with the supply shortage. These dynamics are putting pressure on prices and affecting global economic stability.
The impact of the Houthis’ control on Bab al-Mandab. The Houthis control the Bab al-Mandab Strait, posing a major threat to international shipping. Recent attacks on oil tankers, including targeting commercial ships, led to Saudi Arabia suspending oil shipments through this strategic corridor. About 25,000 ships pass through it annually. The Houthis, with support from Iran, have increased their military capabilities, enabling them to enforce a selective naval embargo. The continuation of these threats may negatively impact the global economy and reinforce the need to secure freedom of navigation in the Red Sea.
The Gaza war affects energy prices in Egypt through several key factors. First, the tensions have led to fluctuations in oil prices, increasing the cost of imported shipments by up to 12%. Second, gas supplies from Israel have stopped, leading to severe shortages of gas used to generate electricity and increased power outages. Third, oil prices could exceed $100 per barrel if conflicts continue, increasing economic pressure on the country.
Economic studies expect that the war on Gaza will lead to significant negative effects on the Egyptian economy. The United Nations Development Program estimates that the costs of the war could reach $20 billion, with an expected decline in tourism and Suez Canal revenues of about $9.9 billion in the medium scenario. GDP is also expected to decline with the unemployment rate rising to 9.1% in the extreme scenario. This increase is due to negative impacts on major economic sectors such as tourism and the Suez Canal, which negatively affects job opportunities and real income for families34. Expectations also indicate that the war will lead to a deterioration in living conditions, increasing social and economic pressures in the country.
These factors will increase pressure on the Egyptian economy and affect financial stability.
The war on Gaza significantly affects the tourism sector in Egypt. Booking rates declined in cities near the border, such as Taba and Nuweiba, as about 90% of tourist establishments there were closed. However, other cities, such as Luxor and Hurghada, were not affected to the same degree, as they maintained good occupancy rates. Expectations indicate a decrease in the number of tourists by about 20%, which could significantly affect tourism revenues if the war continues.
Egypt seeks to attract more investments in the oil and gas sector by offering 61 new investment opportunities for research, exploration, and production. 130 agreements have been signed since 2013, with investments exceeding $18.1 billion. It was also agreed with the UAE to pump $3 billion to establish a new logistics zone for trading petroleum products. The government is also working to enhance cooperation with American companies and apply modern technology to improve production efficiency and reduce carbon emissions, which contributes to achieving sustainable development goals.
The repercussions of wars on the movement of petroleum product prices in Egypt. The Gaza war, Houthi attacks on oil tankers, and Israeli strikes on Yemen affect energy prices globally. Recovery from the crisis requires calming the situation in the region. External events in Egypt’s regional environment have affected contracts to import crude oil and fuel from some Asian markets. Egypt also has an annual contract with Iraq to import quantities of crude oil, and it also imports shipments from Kuwait, the Emirates, and Saudi Arabia. The rise in the cost of petroleum products is the most prominent repercussions of the wars surrounding us, in addition to the rise in the bill for transporting and shipping these products that are imported from abroad, after the exacerbation of geopolitical tensions in the Red Sea, as a result of the Houthi attacks on oil tankers and ships there, as it directly affected the price gap between the cost and the selling price of oil derivatives.
Petroleum investments in Egypt face several major challenges, including:
Aging infrastructure: Refining facilities and transportation networks need modernization, as aging negatively impacts efficiency.
Debts: Delayed payment of foreign companies’ dues hinders the pumping of new investments and affects development processes.
High production costs: The petroleum sector bears a large cost differential as a result of selling products at prices lower than their actual cost, which increases financial pressures.
Dependence on imports: Egypt imports large quantities of petroleum products, which increases the financial burden and depends on global market fluctuations.
To improve the infrastructure in the petroleum sector in Egypt, the following solutions can be adopted:
Increased financing: Allocating additional financial resources through public and private partnerships to enhance investments.
Strategic planning: developing comprehensive plans that consider future needs and achieve integration between infrastructure components.
Facilities modernization: renewing transportation lines and warehouses to reduce waste and increase efficiency.
Enhance maintenance: Allocate sufficient budgets for preventive maintenance and periodic updates.
Using modern technology: applying digital systems to improve operations and increase operational efficiency.
Skills development: Training technicians and engineers to enhance technical and managerial capabilities in the sector.
To improve the Egyptian economy after the war in Gaza, the following steps can be taken:
Introducing legislation to promote investments: Attracting foreign and local investments by improving the business environment and providing tax incentives.
Diversifying revenue sources: Reducing dependence on tourism and the Suez Canal by developing new sectors such as technology and agriculture.
Improving infrastructure: modernizing and expanding industrial and transportation infrastructure to facilitate the movement of trade and increase productivity.
Strengthening social protections through enhanced laws: Providing support programs for vulnerable groups to counter the effects of inflation and unemployment.
Implementing flexible monetary policies: working to reduce inflation and improve the exchange rate to attract more external financing.
Developing education and training: enhancing workforce skills to meet market needs and increase productivity.
These steps aim to achieve economic stability and sustainable growth in the future.
Eng. Mohamed Abdelraouf
Southern Area Gen Mgr – Khalda Petroleum Company
