The ongoing war has unleashed complex macroeconomic challenges for Egypt, with energy at the heart of the storm. As a net energy importer, the government faces the formidable task of navigating the financial arithmetic of conflict while executing International Monetary Fund (IMF)-mandated reforms, most notably the politically sensitive reduction of energy subsidies.
Cairo has moved on several tracks to hedge against surging oil prices and secure supplies. It increased fuel prices, upped import shipments, accelerated arrears repayments to international partners to spur new exploration, tapped alternative markets to diversify imports, and intensified regional cooperation – most notably with Cyprus – to ensure a steadier flow of gas in the years to come.
Some of these measures carry a heavy price tag, straining fiscal balances, yet they have so far succeeded in cushioning Egypt against the immediate repercussions of the war, buying time for the government to pursue longer-term strategies aimed at stabilizing the energy sector and sustaining economic resilience.
The Arithmetic of Volatility
Local fuel price increases were the government’s first resort as energy import costs surged 2–2.5 times in the first month of the conflict, while the natural gas import bill nearly tripled to $1.65 billion a month. In March, barely a week after the conflict began, Egypt raised prices by 14–17% across a wide range of fuel products. In May, it also lifted natural gas prices for several energy intensive industries. These moves are not expected to be one offs, as the new fiscal year’s budget shows.
The 2026/2027 budget submitted to parliament in April assumes international oil prices at $75 per barrel, a level that experts increasingly view as optimistic. That same month, prices spiked to a wartime high of $138.21 on April 7, driven by severe global supply concerns, before ending between $113.94 and $118.03. By late May, they hovered around $95–100 as tentative ceasefire talks between the United States and Iran raised hopes of reopening the Strait of Hormuz.
Fuel subsidies in the 2026/2027 budget are set to fall sharply from EGP75 billion to EGP16 billion. “Considering the sharp cut in energy subsidies in the new budget alongside the surge in global oil prices, another round of local fuel price hikes appears highly likely,” said Aly Metwally, a MENA economic expert. He warned that without higher local fuel pr“saidhe gap between the limited EGP16 billion energy subsidies allocation and the elevated cost of oil would lead to mounting arrears to international oil companies or trigger severe financial strain across Egypt’s wider energy system.
The timing of any future increase depends on three variables: the duration of the Hormuz disruption, the Brent price path, and the stability of the Egyptian pound. Metwally notes that if Brent remains near or above $90–100 for a sustained period, and the import bill stays elevated, the probability of further administered price adjustments rises materially.
Politically, the government is better prepared for such a step than in earlier reform rounds because the IMF framework, the arrears clearance agenda, and the immediate energy security crisis provide a clear policy rationale, according to Racha Helwa, a senior economist and former advisor to Egypt’s Minister of Investment. Future fuel price hikes are expected to be gradual and segmented, with sharper increases for higher income fuels, while diesel and (LPG) vital for transport and household cooking—would rise more slowly, supported by social measures, said Helwa.
Upstream Acceleration and the Arrears Race
Parallel to local fuel price adjustments, the Ministry of Petroleum and Mineral Resources views its most critical line of defense as expanding exploration and accelerating production, while fast tracking repayment of foreign arrears. Ramadan Abou El Ela, a professor of petroleum engineering and energy markets expert, praises these measures, noting that accelerating exploration—particularly in deepwater fields—is long overdue. Egypt’s 2026 plan calls for 14 wells in the Mediterranean and six in the Nile Delta, within a broader nationwide campaign of 101 wells. Abou El Ela stresses that “Full settlement of arrears is the correct way to regain the trust of foreign partners and secure their willingness to inject more capital, since unpaid dues otherwise accumulate as toxic liabilities that weigh down the sector.”
While expanded exploration, accelerated field development, and arrears repayments will help stabilize the supply balance over the medium term, these measures cannot offset an immediate global energy shock within weeks or months. This limitation reflects the physical realities of the upstream sector, where Abou El Ela notes that even the swiftest fast tracked well requires at least a year to commence commercial production. Helwa agrees with this timeline, adding that such measures could transform the supply balance within months only in the rare case of a major exploration success or an unexpectedly rapid recovery in existing fields.
Egypt aims to fully settle its remaining arrears by June 10, following an aggressive repayment strategy underway since June 2024, when arrears stood at $6.1 billion The dues had already been cut to $440 million in May from $714 million at the end of April and $1.2 billion in January. Commenting on this hurried pace of debt settlement, Metwally highlights that it imposes a heavy short term fiscal burden, as the government is forcing itself to clear historical obligations just as its import bill and debt service pressures are peaking.
Supply Diversification as a Risk Management Tool
With LNG shipments from Qatar and crude imports from Kuwait stalled by the war, Egypt has had to look elsewhere for volumes. The Egyptian General Petroleum Corporation (EGPC) and Algeria’s Sonatrach recently signed a Memorandum of Understanding for Algerian crude, alongside a cooperation agreement with Libya. Helwa noted that while diversifying import sources is rational under crisis conditions, it should be seen as a tactical risk management tool rather than a cost saving strategy. Such bilateral deals do not eliminate Egypt’s exposure to global benchmarks, shipping premiums, war risk insurance, hard currency constraints, or strict payment terms. Moreover, both Libya and Algeria face production, infrastructure, and political limits. Metwally cautioned that these moves are not a structural substitute for restoring domestic gas output or securing more stable, long term supply.
Leveraging Infrastructure for Long-Term Stability
Beyond short term fixes, the government’s broader plan relies heavily on Egypt’s established energy infrastructure. Egypt is well positioned to import piped natural gas from Israel and, later, Cyprus at costs far lower than LNG. Part of this gas will be used domestically, while the rest exported after liquefaction at the Idku and Damietta plants. Egypt maintains a $35 billion gas import agreement with Israel and has signed a 15 year deal to purchase the entire output of Cyprus’s Aphrodite gas field, expected to begin production in about six years.
Regional gas cooperation offers Egypt its fastest and cheapest relief channel as piped gas is materially cheaper than LNG because it avoids liquefaction, shipping, and regasification. For Cairo, this reduces the import bill, stabilizes power supply, and preserves the long term economic value of its LNG facilities, noted Helwa. She added that “Cyprus offers a crucial diversification channel for gas imports, as Egypt’s liquefaction plants can monetize Eastern Mediterranean discoveries that Cyprus alone struggles to export.”
Another long term plan is to expand renewables—especially solar—in the energy mix. In May, the government launched an initiative to encourage 7,000 factories to generate power from rooftop solar panels. Banque Misr is also offering soft loans to support solar installations in residential units.
Balancing Pain and Resilience
Egypt’s wartime energy strategy is less about quick fixes than about buying breathing space. Price hikes, arrears clearance, upstream acceleration, and regional gas cooperation are all stopgap measures to keep the system afloat until deeper reforms and new discoveries take hold. The calculus is harsh: every short term cushion comes with fiscal pain, but the government is wagering that resilience today will secure stability tomorrow. Success depends on global price trends, the durability of regional partnerships, and Cairo’s ability to sustain reform momentum under political pressure.
