Egypt’s Energy Challenges and Their Political Implications for the War in Gaza
Developments in the Eastern Mediterranean over the past decade have placed Egypt at the center of a regional cooperation system regarding energy and political strategy. Gas discoveries in Egypt’s economic waters, significant investments by the Egyptian government in the energy sector, the 2019 establishment in Cairo of a regional gas forum, and the presence of two existing liquefaction facilities in Egypt (in Idku and Damietta) all augur well for Egypt’s ambition to be the regional hub for gas exports. The export of gas from Israel to Egypt also contributes to Egypt’s energy security, both in terms of the regular supply of electricity to the local economy and the export of a significant amount of gas to Europe in exchange for foreign currency urgently needed in Egyptian coffers. The war in Gaza has added complexity to Egypt’s policy towards Israel since the imports of gas from Israel are essential to its energy stability. Moreover, the Houthi attacks have decreased traffic in the Suez Canal and caused serious damage to Egypt’s economy.
Egypt’s energy problems worsened in the summer of 2023 when the authorities were forced to initiate power outages in response to heat-wave-induced high demand for electricity. Moreover, the country’s gas discoveries proved disappointing. The Zohr gas field, which the Italian energy company ENI discovered in 2016 and was named the largest in the Eastern Mediterranean, turned out to be much smaller. Estimates today are at about 11 TCF, which is roughly a third the amount announced upon the field’s discovery. It is similar in size to Israel’s Tamar field and smaller than Leviathan. Another discovery that turned out to be a letdown was the Orion field.
The war in Gaza caused further damage to Egypt’s energy sector and affected the treasury in Cairo. When Egypt became an energy exporter in 2019, its dependence on gas imports from Israel increased. The quantities of gas exported from Israel have increased since 2020. In 2022, Israel exported about 5.8 BCM to Egypt, and by the end of 2023 those quantities had apparently increased slightly. The Israeli Ministry of Energy recently approved the increase of exports from Tamar and the expected implementation will be from the middle of next year.
Israel’s decision to shut down the Tamar field at the outbreak of the war caused the Egyptians serious problems. In addition to having less gas supply available for the Egyptian economy, Cairo could not export liquefied gas to Europe, which made the country’s economic situation even worse. The resumption of Tamar’s activities in mid-November evoked a sigh of relief in Cairo (and in Israel, of course).
In addition to all the other troubles the war in Gaza has brought about, the mobilization of the Houthis in Yemen to help Hamas led to a drastic decrease in the traffic of ships through the Suez Canal, which caused another serious dent in one of Egypt’s major sources of income.
An interim summary of the relationship between Israel and Egypt in the field of energy shows that exports from Israel are an essential component, both for Egypt’s internal energy economy and for its exports to external markets, such as Europe and Turkey (the latter is estimated at about $1 billion per year!). This allows the Egyptian government to receive a very important return in foreign currency. It should be noted that Egypt recently reached an agreement with the International Monetary Fund that slightly eases the repayment of its huge debts. The same goes for the European Union. The latter, which understands the great importance of maintaining stability in Egypt, rolled up its sleeves. Commission President Ursula von der Leyen announced an aid package in the amount of €7.4 billion to “help deal with the immigration problem and to increase the volume of gas exports from Egypt to Europe.”