What’s happening:

The ongoing conflict between Israel and Hamas in Gaza has dealt a severe blow to Egypt’s economy, with critical sectors like the Suez Canal and tourism taking the hardest hits. The maritime traffic has witnessed a marked downturn due to continued hostilities, driving shipping companies to seek alternate routes, thereby circumventing the Suez Canal—a vital source of revenue for Egypt.

Why it matters:

This downturn strikes Egypt amidst an already struggling economic scenario exacerbated by the COVID-19 pandemic and the global repercussions of Russia’s invasion of Ukraine. With the Suez Canal incomes diminishing considerably and tourism at an all-time low, the Egyptian currency is under pressure, and a spike in unemployment rates seems probable. This could have potent societal and political repercussions, reminiscent of those that catalyzed the January 2011 revolution.

The Toll on Suez Canal and Tourism:

The Suez Canal, an economic linchpin for Egypt, experienced a shock with transit fee revenues falling between 40% – 50%. As conflict prolongs, many companies avoid the shorter but riskier passage after Houthi attacks on shipping in the Red Sea, despite the extra cost associated with circumnavigating Africa via the Cape of Good Hope.

Egypt’s flourishing tourism industry, a critical employer in the Sinai region, is suffering intensely under the shadow of warfare. Imaging holidaying under the threat displays a stark contrast to last fiscal year’s record $13.63 billion contribution to Egypt’s income.

Rising Inflation in Egypt:

Rising inflation destabilizes an already floundering cost of living. Egypt’s government, burdened by economic hardship, cannot assuage the problem by subsidizing essential commodities, deepening the decline in the living standards of its citizens.

Currency Devaluation and Falling Remittances:

Egypt’s currency woes continue, with the Egyptian pound’s value expected to destabilize further, compounding the economic strain. Concurrently, remittance inflows from abroad have dipped sharply, possibly influenced by anticipation of said devaluation.

Social and Political Ramifications:

Prevailing economic hardships culminating from decreasing revenues in key sectors indicate a heightened risk of unemployment. The rising cost of essentials, notably food and beverages, accentuates the hardship faced by a significant proportion of Egypt’s 110 million citizens living under the UN-defined poverty line.

Broader Political Landscape:

Added to Egypt’s immediate economic concerns must be its geopolitical stance. Strains in Egypt-Israel relations and especially multifaceted issues surrounding governance in Gaza after the war contribute to the delicate situation Cairo finds itself in.

The Big Picture:

Egypt’s options and policies concerning the Gaza conflict are informed not only by military and political factors but by the dire need to stabilize and enhance its economic condition. The severity of the economic ramifications Egypt faces prevailing over that of other Arab states, including Jordan, adds weight to the importance of Israel recognizing Egypt’s intertwined quandaries.

This story was first published on jpost.com.