Egypt could be big casualty of Houthi attacks on Israel

Suez Canal credit: Shutterstock
Suez Canal credit: Shutterstock

The Iranian-backed Houthis may be targeting Israeli shipping but they could wreak havoc with Egypt's economy as ships avoid the Suez Canal.

The attacks by Houthi rebels that escalated on Sunday have aroused concern in the Israeli shipping industry. ZIM Integrated Shipping Services Ltd. (NYSE: ZIM) has rerouted ships bound for Israel around Africa and Danish shipping giant Maersk has implemented a similar measure with the two ships it leases from Haifa-based XT Group.

But while in Israel the main concern is delays in the supply chain and price hikes, Egypt is worried about the implications because if shipping avoids the Red Sea, then it bypasses the Suez Canal.

An estimated 12% of global trade passes through the Suez Canal including 5% of crude oil, 8% of liquefied natural gas (LNG) and 10% of petroleum products. 50 ships pass through the Suez Canal each day including 30% of the world's container traffic.

Over the past year Egypt has earned $9.4 billion from the Suez Canal, up from $8 billion the previous year. Between July and December 2022, income from the Suez Canal represented 2% of Egyptian GDP.

Concern over a regional war

Tel Aviv University Department of Arabic and Middle Eastern Affairs Institute for National Security Studies (INSS) senior researcher and lecturer Dr. Ofir Winter, an expert on Egypt, tells "Globes", "One of the main concerns of Egypt is that the war between Israel and Hamas will spill over into a regional war, shake up the stability in the Middle East and adversely affect its security and economic situation.

"In the economic sense, the war in Gaza is added to the external shocks experienced by Egypt in recent years by the Covid pandemic and Russia's invasion of Ukraine. The apparent damage is focused on three of the country's main sources of foreign currency income: energy, tourism and the Suez Canal. The canal was an economic bright spot for Egypt in the fiscal year 2022-2023. Strengthening the attractiveness of the canal route for global maritime traffic is related, among other things, to the increase recorded in oil and fuel prices."

Due to this growing dependence on the Suez Canal, the al-Sisi administration invests about 4% of all state investments in it. Investments in the first half of last year grew by 25% to about $390 million. However, Egypt is a country weighed down by debt. While investments in the canal increased, Cairo last year applied to the IMF for a loan of $12 billion dollars, but could not meet the conditions. The solution found in October last year was a loan of $3 billion spread over 46 months.

Currently Egypt's debts to the IMF amount to $12 billion, the second highest amount in the world, and this after it recently paid back "only" $418 million. For the sake of comparison, Ukraine, which is facing a war on a historic scale for its part, owes the IMF about $8.7 billion.

A series of attacks

So Egypt has also suffering from the surprise attack on Israel by Hamas on October 7. Firstly, Israel has reduced its supply of gas to Egypt because the Tamar gas field shut down for the first month of the war. Egypt liquefies the gas it receives from Israel and exports it worldwide. While gas supplies have now resumed, Egypt lost out on a month and a half of LNG revenues.

To further exacerbate Egypt's woes, the Houthis then launched their series of attacks on shipping. First the Galaxy Leader, a roll-on/roll-off ship, was hijacked in the Red Sea. Then there was an attack in the northern Indian Ocean by an Iranian-made suicide drone on the CMA CGM Symi, owned by Idan Ofer's Eastern Pacific Shipping.

The third attack, not far from there, 54 miles off the coast of Somalia was the hijacking of the Central Park container ship owned by Eyal Ofer's Zodiac Shipping. According to the Pentagon, the attackers were Somalis. After the ship was rescued, two ballistic missiles from an area controlled by the Yemenite Houthi rebels, were fired at the USS Mason and Central Park. The missiles fell in the sea offshore from Aden.

Then on Sunday, there was the most powerful attack of all. Using Iranian-made missiles and drones, the Houthis attacked the USS Carney and three commercial vessels with links to 14 countries. One of these vessels was the Unity Explorer, sailing to Singapore, which is owned by UK-based Unity Maritime owned by Israeli Danny Ungar.

Worth millions

The significance of these attacks is to raise the risk rating of the shipping route in the Red Sea, which is not only close to Yemen but is also the only way to reach the Suez Canal. Alternatively ships from the west can sail around the southern tip of Africa and eastwards through the Indian Ocean. These changes are worth millions of dollars, which while extending the supply chains, will also directly harm Egypt's revenues from the Suez Canal.

This coming Sunday Egyptian citizens will go to the polls. President Abdel Fattah al-Sisi's position is not expected to change, but he needs the income from the Suez Canal. Without them, Egypt's debt crisis will only worsen.

"Egypt sees the guarantee of freedom and security of navigation from Bab al-Mandeb to the Suez Canal as a central interest, and supports the settlement of crises that may endanger it, starting from Yemen, through Somalia and ending with the war in Gaza," stresses Dr. Winter.

He adds, "In 2015, Al-Sisi inaugurated the 'New Suez Canal,' a grandiose national project that increased the capacity of ship traffic along the route, and about $8 billion was invested in it. The Egyptian effort to improve relations with Iran recently was aimed, among other things, at preventing hostile activity in Bab Al-Mandeb by the Houthis, to maintain freedom of navigation in the Red Sea along the shipping lanes to the Suez Canal."

Published by Globes, Israel business news - - on December 5, 2023.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2023.

Suez Canal credit: Shutterstock
Suez Canal credit: Shutterstock
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