An economist at Moody’s Analytics, Dominic Bartos, said that the Gulf Cooperation Council (GCC) countries are facing an unprecedented crisis due to the Iran war, raising concerns about the potential postponement or cancellation of their previously announced investments in Egypt.
Bartos added that the Egyptian economy was in a strong position at the beginning of 2026, with notable growth and low inflation.
However, the the onset of the US-Israeli war on Iran, coupled with the volatility of global energy prices has clearly exposed the weaknesses of the Egyptian economy, thereby jeopardizing its recovery.
He explained that while the recent ceasefire agreement offers some relief, uncertainty remains high, and energy prices are likely to remain above pre-war levels for an extended period due to shipping disruptions and damage to regional oil and gas infrastructure.
Bartos indicated that he does not expect the external shock to impact domestic macroeconomic and financial stability, but growth will be temporarily weaker and inflation higher than anticipated.
He noted that continued pressure on commodity prices, energy supply disruptions, and increasing capital outflows pose significant downside risks to the outlook.
The economist explained that Egypt, as a major importer of commodities and suffering from a large fiscal and current account deficit in its balance of payments, is highly vulnerable to global commodity price shocks.
Rising energy import bill
The recent surge in oil and gas prices, coupled with supply disruptions, has led to a sharp increase in Egypt’s energy import bill, negatively impacting its fiscal and external balances, Bartos noted.
This pressure is exacerbated by Egypt’s shift from a natural gas exporter to a net importer, with its increasing reliance on Israeli gas via pipelines and liquefied natural gas imports.
Bartos predicted that high energy costs, along with a weak currency, will lead to higher inflation in the near term.
He emphasized that Egypt remains structurally more vulnerable to sudden fluctuations in portfolio investment flows than many of emerging market peers.
This vulnerability stems from high levels of foreign participation in its domestic financial markets and its substantial external financing needs, he said, resulting from a large current account deficit and significant external debt.
Bartos added that, given the inadequacy of other foreign exchange sources to cover external obligations and their vulnerability to rapid depletion during periods of heightened regional risks, “hot money” plays a crucial role in bridging the external financing gap.
Egypt is experiencing its largest capital outflow since the Russian invasion of Ukraine, he noted, which has led to a sharp depreciation of the Egyptian pound.
