Mideast war highlights Egypt's energy weak spot: Bousso
LONDON - Egypt was one of the biggest economic losers of the Middle East's 12-day war after Israel shut down vital natural gas exports to its neighbour.
The gas pipeline linking the two countries was turned back on after Israel and Iran agreed to U.S. President Donald Trump's ceasefire on June 23, but the episode highlights Egypt's vulnerability and fading hopes that the Eastern Mediterranean could become a major gas exporting region.
The discovery and development of enormous offshore gas resources near Egypt, Israel and Cyprus in the 2000s has radically transformed the region's energy landscape, turning the region into a major production hub and attracting international energy companies.
The surge in production was a huge boon for Egypt in particular. The discovery in 2015 of the Zohr field, the biggest gas deposit in the eastern Mediterranean, and its rapid development by 2017 offered Egypt critical energy for its domestic market as well as vital income from exports of liquefied natural gas (LNG), which reached 7 million tons in 2022, nearly 2% of global supply, according to data from analytics firm Kpler.
But things started to go awry for Egypt early this decade when production began declining rapidly, particularly in the flagship Zohr field. The country's output dropped from a peak of over 6 billion cubic feet per day (bcf/d) in early 2021 to 3.5 bcf/d by April 2025, according to JODI data.
Production is expected to average 4.4 to 4.6 bcf/d this year, according to Martin Sherriff, an analyst at consultancy Welligence Energy Analytics. It is, however, unlikely to increase significantly in the coming years given the country's limited offshore gas exploration success in recent years, he added.
Egypt's energy woes were compounded by the rapid growth in its population from 100 million in 2015 to 115 million by 2023. With domestic production insufficient to meet the population's needs, Egypt in 2020 started to import gas from Israel, which had also saw a surge in gas production last decade following the discovery of a number of big offshore resources. Israel's production rose by over 70% in the decade to 2024 to 2.5 bcf/d, with around half of the volume exported to neighbouring Egypt and Jordan, according to government data.
The sharp production decline also led Egypt to resume LNG imports in 2024 for the first time since 2018. Egypt is expected to import up to 160 LNG cargoes this year and next at far higher prices than what it can produce domestically or import from Israel, where export pipelines are already at full capacity.
WAR CASUALTY
The recent war between Israel and Iran put a harsh spotlight on Egypt's energy vulnerability.
Israel and Egypt, neighbouring countries who signed a peace agreement in 1979 after decades of intermittent conflict, saw their inter-dependency tighten significantly as the gas trade between them developed.
These gas flows were largely uninterrupted following the outbreak of violence in the region on October 7, 2023. But that changed on June 13 when Israel halted operations at two of its three offshore gas fields, Leviathan and Karish, hours after it launched a surprise wave of airstrikes against Iran, leading to the suspension of natural gas exports.
Egypt imported over 0.9 bcf/d from Israel in the first four months of 2025, around 17% of the former's gross observed consumption, according to Jodi data.
So the drop in Israel gas deliveries just as demand for power was nearing its summer demand peak threatened to deal a harsh blow to Egypt's economy.
Egyptian fertilizers producers were forced to shut down operations as part of a government emergency plan to deal with the drop in Israeli gas supplies. The country's power plants ramped up the use of fuel oil to the maximum level while others switched to diesel to protect the stability of the grid in a country that has experienced huge blackouts in recent years.
A back of the envelope calculation suggested that for each week of disruption to Israeli gas imports, Egypt would have needed to buy an extra two LNG cargoes or find alternative fuel sources.
RISING RELIANCE
Thankfully for Cairo, Israel resumed gas exports to Egypt on June 25. But this hardly solves Egypt's underlying problems.
It is true that energy majors including BP, Exxon Mobil, Shell and Chevron continue to explore for new gas resources in Egypt, which, if located, could help offset the natural decline in its current fields.
Israeli gas exports to Egypt could increase when the Chevron-operated Leviathan field expands production to 14 bcm in 2026 from 12 bcm today, although delays in the expansion of pipeline capacity between the two countries could impede that expansion.
But, for now, the country's natural gas production faces a grim outlook. Meanwhile, the nation is also struggling with sluggish growth and a significant loss of revenue from Suez Canal transit fees, as many ship operators have diverted vessels away from the Red Sea due to attacks by Iran-backed Houthi rebels in Yemen since 2023.
And taking a broader regional perspective, the decline of Egypt's gas industry is dashing hopes that the Eastern Mediterranean will become a major LNG exporting hub in the coming years.
Enjoying this column? Check out Reuters Open Interest (ROI),your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis. Markets are moving faster than ever. ROI can help you keep up. Follow ROI on LinkedIn and X.
(Writing by Ron Bousso; editing by David Evans)
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