How Red Sea attacks prepared Egypt’s economy for future shocks

The Red Sea ship attacks may have dented Egypt’s economy, costing billions of dollars in lost Suez Canal fees, but they also forced much-needed change, according to the head of Egypt’s third-largest private bank.

Hisham Ezz Al-Arab is CEO of Egypt’s Commercial International Bank, which boasts 1.263 trillion Egyptian pounds ($25.3 billion) in assets as of the first quarter of 2025.

“The Red Sea instability pushed the Suez Canal Authority to start to diversify their revenues through their dry docks in terms of maintenance, shipyard buildings and manufacturing areas,” Al-Arab told Al-Monitor.

"As inbound tourism to Egypt fell during the war in neighboring Gaza, the government moved to diversify the Suez Canal Authority revenues, by expanding manufacturing and its services, to compensate for the foreign currency losses."

Egypt has spent the past three years navigating its worst economic downturn in six decades, triggered by a combination of foreign currency shortages, surging debt and high inflation, much of it linked to global shocks like the COVID-19 pandemic and the Ukraine war. The country’s dependence on Black Sea imports, particularly fertilizer and wheat, left it exposed.

Then came new geopolitical blows. The Hamas-Israel war that began in October 2023 disrupted tourism, while Houthi rebel attacks on commercial vessels in the Red Sea choked Suez Canal traffic — one of Egypt’s top sources of foreign currency. According to a December 2024 Bloomberg report, the disruptions cost the country at least $7 billion in canal fees. The man-made waterway previously carried around 12% of global trade and contributed roughly 2% of Egypt’s GDP.

However, Al-Arab sees long-term upsides in how Egypt is responding.

Value-added exports over raw materials

The regional instability, including June’s 12-day Israel-Iran war, has exposed Egypt’s reliance on energy imports. After Israel temporarily shut down its Leviathan gas field, which supplies 15–20% of Egypt’s gas consumption as well as its LNG export terminals, Cairo’s vulnerability became clear.

Egypt has long aspired to become a regional gas hub, especially since its Zohr gas field, the largest in the Mediterranean, began production in 2017. But declining output, partly due to breakage, has limited progress. Al-Arab is blunt: Egypt shouldn’t export gas if it can't meet local demand first.

At the core of his argument is a broader call for Egypt to pivot from exporting raw materials to semi-manufactured goods, a shift he believes would boost revenues and improve economic durability.

“The added value from exporting processed leather or sand is by far superior to the value we get from exporting raw materials,” he said. “We need to start processing these products through domestic manufacturing. That will be enough to ignite a major industrial revolution.”

Signs of turnaround

Egypt’s economic crisis peaked in early 2023, when the pound lost over half its value against the US dollar. Since then, monetary tightening, a flexible interest rate regime and a commitment to structural reform, including a privatization program for state-owned companies, have helped stabilize the economy. These reforms also helped secure an $8 billion bailout from the International Monetary Fund in March 2024.

One year later, the future looks brighter. Inflation dropped from 38% in September 2023 to 17% in May 2025. Foreign investment has returned, most notably through a $35 billion Emirati-backed tourism project in Ras El Hikma, and more Gulf investment is on the way. Qatar and Kuwait have already announced that they will pump millions into the country. Remittances and tourism have also recovered.

In addition to the renewed foreign interest, the new monetary policy has also brought improved liquidity among domestic Egyptian banks, meaning businesses in the industrial and services sectors are now better positioned to resume delayed investment plans, Al-Arab said.

“As Egypt’s macroeconomic environment continues to improve, investor confidence is cautiously returning, with both portfolio and strategic investors beginning to revisit Egypt as a viable frontier market opportunity,” Al-Arab said.

Even concerns over the currency's stability appear to be fading.

“For the last several months, in my meetings with investors, they are not opening the conversation with the exchange and interest rates anymore,” he said. “It’s no longer a subject of discussion.”