Egypt hopes for Suez Canal boost if Israel-Hamas ceasefire holds

The ceasefire deal agreed between Israel and Hamas earlier this month to halt the ongoing conflict in Gaza is raising hopes that commercial shipping routes through the Red Sea and Suez Canal could become viable again, providing a much-needed boost to the Egyptian economy.

When war broke out between Israel and Hamas in October 2023, the Yemen-based Houthis declared their support for Hamas and responded by targeting commercial shipping in the Red Sea. While they initially claimed to be targeting only Israeli vessels, the Houthis attacked vessels from a variety of countries. Since November 2023, the Houthis have carried out more than 100 attacks on ships, sinking two vessels and killing at least four people.

The Houthis’ attacks – which also saw insurance premiums soar – forced global shipping companies to avoid passing through the Red Sea and into the Suez Canal, instead rerouting their ships around the Cape of Good Hope.

Transit fees much reduced

This has caused particular problems for Egypt, which relies on Suez Canal transit fees for a significant chunk of its foreign exchange, which has been in short supply for several years. Egypt’s lack of foreign exchange has made it more difficult for the country to cover its large import needs, meet its debt repayments, and stabilise the value of the Egyptian pound (EGP).

Indeed, prior to the outbreak of the conflict, transit fees contributed around $750m a month to the Egyptian economy, but in February last year, President Abdel Fattah El-Sisi said that Cairo’s revenue from the Suez Canal had dropped by as much as 50%. This has put further pressure on an economy which is already battling high levels of inflation, high levels of external debt, a large current account deficit, and a weak domestic currency.

However, the ceasefire deal means there could be hope on the horizon. The Houthis have said that they will no longer target foreign vessels, apart from Israeli ships, which they say will still come under attack until “all phases of the agreement” have been fully implemented.

Major shippers cautious

Yet until there is free transit for all ships through the Red Sea and Suez Canal, including Israeli, it is unlikely that the situation will fully return to normal. Hapag-Lloyd, one of the world’s largest shipping companies, has said that it is monitoring the situation but will only return “to the Red Sea when it is safe to do so.”

The French shipping giant CMA CGM has stated that, while it deems the region is becoming more stable, it is not yet ready to return to the Red Sea.

However, a gradual return to Red Sea operations is a possibility provided the ceasefire deal between Israel and Hamas holds.

Amin Mohseni-Cheraghlou, senior lecturer in economics at the American University in Washington DC, tells African Business that “the ceasefire – if respected and continued by all parties involved – can potentially lead to lower tension in the Red Sea and therefore higher cargo traffic through the Suez Canal, providing some, albeit small, economic relief for Egypt.”

“In 2024 alone, Egypt’s revenue from the canal declined by about $7bn, down from $9.4bn in 2023, at a time when the Egyptian economy is in dire need of any foreign exchange it can get its hands on.”