Securing power - Economy - Al-Ahram Weekly
Oil and gas prices remain highly sensitive to geopolitical tensions, a pattern observed repeatedly over the decades from the October 1973 War to more recent events such as Russia's invasion of Ukraine in 2022.
The military escalation between Israel and Iran on Friday serves as a stark reminder of this volatility, with crude oil prices surging by seven per cent to $78 per barrel before easing to approximately $73 by Monday evening.
The percentage increase is not scary, as the current levels are almost $10 lower than prices at the start of the Russia-Ukraine war. Nevertheless, the difficulty in predicting possible future scenarios has sent ripples through the energy markets, resulting in observers putting their estimates for the price of oil during the next period anywhere between $75 and $120.
On Sunday, the first working day in the local bourse and banking sector since Israel's attacks on Iran, fears of pessimistic scenarios weighed on transactions in the local currency as well as on the Egyptian Stock Exchange (EGX).
The EGX lost LE94 billion of its market capitalisation, with all the indices ending in the red. The exchange price of the Egyptian pound dipped from under LE50 per dollar to cross the LE51 per dollar threshold before settling back at around LE50.2 on Monday. Foreign investors abandoning Egyptian equities and the currency for safer havens is the reason behind the drop.
'If the conflict continues, the world will witness violent price fluctuations. In a worst-case scenario, which is Iran blocking the vital Hormuz Straits, global markets will suffer a daily loss of some 18 to 20 million barrels of oil per day. Prices could go up to $120 per barrel or more. Some analysts talk about $150 per barrel for benchmark Brent crude,' said Nehad Ismail, an oil expert living in London.
Being a net importer of gas due to a decline in national production from the Zohr Gas Field and an increase in the demand for power during the hot summer months, the possibility of such a jump in prices is not easy to live with.
Egypt's gas deficit (the difference between production and consumption) amounts to 3.5 billion cubic metres per day, with Israel contributing one billion cubic metres of this. Cairo fills the remaining deficit of approximately 2.5 billion cubic metres through imported liquefied natural gas (LNG) shipments that are converted to a gaseous status and then pumped into the national grid.
To cover the demand-supply gap and avoid load-shedding plans with power cuts that last for hours, Egypt has become dependent on Israeli gas being exported through pipelines. However, the two gas fields that cover Egypt's demand, the Chevron-operated Leviathan and the Greek firm Energean's Karish, suspended production a few hours after the beginning of the reciprocal attacks.
Soon after the closure, Prime Minister Mustafa Madbouli announced that Egypt has activated emergency plans to prevent electricity cuts. Power stations have ramped up their use of fuel oil to maximum available levels, a Ministry of Petroleum statement said, and some plants are being switched to diesel to help protect the stability of the gas network and avoid load reductions. Moreover, fuel reserves have been doubled compared to last year, said the prime minister, adding that additional supplies are being arranged to support continued electricity production through the summer.
Since last year, the government has promised several times that this summer will witness no power cuts, an aim which it has worked hard to reach. Egypt's power needs represent two-thirds of overall gas consumption.
Egypt has already taken steps to avoid acute shortages of gas. It has agreed to buy LNG from suppliers including Saudi Aramco, the Trafigura Group, and the Vitol Group over two and a half years. The deals will bring in as many as 290 cargoes of LNG starting next month, all aimed at cutting Egypt's reliance on volatile spot markets.
They are priced at a premium to the European gas benchmark, according to a Bloomberg report on Thursday.
Egypt has also finalised contracts to lease Floating, Storage, and Regasification units (FSRUs). Madbouli said Egypt has secured three floating gas regasification vessels. According to the State Information Service website, one of these units is being prepared in Ain Sokhna to begin operation by the end of June and another will follow in July.
The government is acquiring the plants to handle the hundreds of LNG shipments from a variety of sources and intermediaries that will help alleviate shortages during the difficult months of summer. $3 billion worth of contracts have been signed to import sufficient LNG to see the country through the summer.
Paying more for imports means that the country's trade balance will show a deficit, and the budget's deficit will not be at a conservative seven per cent, as the value of energy subsidies, halved in the 2025-26 budget, will increase again.
Egypt is committed to ending fuel subsidies by the end of this year under its agreement with the International Monetary Fund.
* A version of this article appears in print in the 19 June, 2025 edition of Al-Ahram Weekly
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