In August 2015, the newly sworn-in Egyptian administration inaugurated the new Suez Canal branch to bring additional foreign currency to the struggling Egyptian economy. According to Lieutenant General Mohab Mamish, the former Head of the Supreme Canal Authority (SCA), an ambitious estimate was given that the new canal’s branch would generate $100 billion in foreign currency annually.
Egypt is a rentier state that heavily relies on foreign currency from the revenues of several unstable sources. The Egyptian economy was severely damaged by the unrest caused by the Arab Spring in 2011, which resulted in major withdrawals of Foreign Direct Investments (FDI) and significantly reduced income from lower tourism rates. The Egyptian economy in 2015 was in a dire situation, and the new Suez Canal branch was seen by the Egyptian administration as a kiss of life. Things went up the hill, and foreign investments in the Suez Canal industrial zone were getting the wheel turning until the outbreak of the COVID-19 world pandemic in 2020. After this, things started to take a U-turn, as world trade was interrupted due to the international lockdown. This was followed by other crises that hit the Suez Canal, such as the incident of the Ever Given ship in March 2021, which obstructed the canal and blocked it for six days. This was followed by the outbreak of the Russia-Ukraine war, which negatively affected world trade again in Feb 2022 and, until the time of writing, is still ongoing. Finally, arguably, the most significant blow came considering the outbreak of the war on Gaza in October 2023. Among its many results are the attacks on vessels in the Red Sea conducted by the Yemeni Houthis in Yemen. The escalation in Gaza escalated the Houthi’s attacks to target any ship carrying any flag and supporting Israel. These attacks disrupted navigation in the Red Sea, serving as a test for one of Egypt’s economy’s key arteries, seeing how strong it is against the possibility of collapse and subsequent disaster.
The Houthi raids began in November 2023, but by December 2023, their reach in the Red Sea had expanded. Like the bear that murdered its master, the Houthis wanted to remove international support for Israel, force Israel to cease its bombardment on Gaza, and open the border to food and medical supplies.
However, this did not happen. Instead, maritime rerouting away from the Red Sea, especially for oil and gas carriers, meant using the Cape of Good Hope route instead, avoiding and disadvantaging the Suez Canal.
The importance of the Red Sea route comes from the fact that around 40% of the world’s International Trade transits through the Bab Al Mandeb strait, running between Yemen and the Horn of Africa. The Suez Canal Authority (SCA) announced in November 2023 an increase in revenues of 20.3% to reach $854.7 million in comparison to $710.3 million in 2022. By December 2023, only 55 ships diverted from the Suez Canal route to the Cape of Good Hope. Considering this massive avalanche and the many difficulties the Suez Canal had experienced, the SCA decided to increase transit fees in mid-January 2024 by 5 to 15% to compensate and maintain the foreign currency flow but it remains unsuccessful. Consequently, this negatively influenced Egypt’s foreign currency revenues due to the “drop of dollar revenues from the Suez Canal by 40%, and the loads shrank by 41%, in the period between 1 until 11 January 2024”. According to the IMF PORTWATCH, the 7-day moving average in May 2023 was 82, while in May 2024, it reached 31. In July 2023, the 7-day moving average was 74, while by the 9th of July 2024, the 7-day moving average wa.
As the situation continued deteriorating, the current Head of the Suez Canal Authority, Admiral Ossama Rabiee, conducted several meetings with various international figures to discuss the developments in the Red Sea. For example, in January 2024, he met with the Secretary General of the International Chamber of Shipping, where both discussed the security of the vessels and the safety of their crew members as a priority. Again, in July 2024, he met with the Secretary General of the International Association of Inter Cargo to discuss possibilities for further cooperation on the Red Sea crisis and methods of containing it. Admiral Rabiee highlighted in this meeting with the Secretary General of the International Association of Inter Cargo the negative repercussions of these attacks by the Houthis, resulting in soaring insurance prices for the vessels, rising fuel prices, and delays in shipments, all factors that affect deadlines. When asked by the author if these shipping companies could play a role in negotiations between Israel and Gaza, Professor Mohamed Ali, professor of Economics and Logistics, thought that it would be difficult. International Shipping companies are benefiting from the higher insurance rates: they started charging their clients extra payments, which benefits them a lot and makes it highly unlikely they would offer to mediate between Israel and Gaza, justified Ali to the author (2024).
Admiral Rabiee sees significant danger in this ongoing crisis as it becomes a national security concern for Egypt, since these attacks might have various impacts. The first direct and damaging impact is on the Egyptian economy and a reduced flow of foreign currency, which adds to the burdens on Egypt’s budget. The second impact is the possibility of one of the drones targeting Egyptian soil. Yet despite this last point in specific, Egypt queried joining international coalition forces led by the USA and joined by another forty countries. According to Maher and Farid, the Egyptian administration has other “political calculations” which prevent it from joining the coalition; the most important being the rejection to interfere militarily so as not to prolong the war. Furthermore, financially and economically, Egypt is unable to go into war as war economies drain a country’s resources, which Egypt cannot afford at this critical time.
To conclude, the Red Sea crisis is a curse on Egypt’s economy. Still, until the time of writing, the unwavering economic status is owed to the loans Egypt is getting from the International Monetary Fund (IMF) and pledges from the EU for hosting refugees on Egyptian land and finally from making huge investment deals with Arab Gulf countries such as the UAE, and Saudi Arabia. These temporary solutions were able to bring in some liquid money to help the economy survive such hard times. A swift return to normal navigation and insurance of maritime security in the Red Sea would be life-saving to the Egyptian economy and its current administration.
