Iran increases conflict risks, and

As the regional conflict involving Iran intensifies and shipping through the Strait of Hormuz comes to a near halt, Middle East business leaders are considering both the risks and potential opportunities. Hisham as al-Arab suggests that some oil shipments may be diverted to the Suez Canal.

As CEO and board member of Commercial International Bank (CIB), Egypt’s largest private sector bank, Hisham Ez Al-Arab sees firsthand how the war is shaking regional financial markets, disrupting emerging economies, and putting pressure on currencies as investors flock to safe-haven assets.

Global Finance: How is the current war on Iran affecting the region’s economies and financial sector?

Hisham ez al-arab: The sector faces considerable uncertainty as markets react more strongly than last June’s 12-day war. In addition to refineries closed due to security risks, the closure of the Strait of Hormuz, which handles about 25% of global oil and 20% of gas shipments, resulted in oil prices crossing the $100 per bbl mark for the first time since 2022. This poses a significant risk to GCC countries, particularly Qatar and Kuwait, due to both their high oil production and dependence on the Strait of Hormuz, as well as increased freight and insurance costs.

lover: What will be the impact on Egypt?

ez al-arab: In the short term, the situation affects Egypt in terms of uncertainty. Emerging markets – including Egypt – have seen major portfolio outflows, putting the Egyptian pound under particular pressure and reversing its gains against the US dollar over the past year to an all-time low. This followed a rise in safe-haven assets, including the US dollar and gold, as risk-averse investors reallocated their investments away from emerging markets. In the longer term, risks include inflation rising again and central banks keeping rates steady.

GF: What is your opinion on currency adjustment?

ez al-arab: I think the central bank (CBE) is doing an excellent job with its flexible approach to managing the exchange market, especially with regard to cash repatriation. With large amounts of carry trades uncontrolled – estimated at around $7 billion – $8 billion out of a total of $35 billion – $40 billion – the CBE has allowed the pound to move from around 47 to 53 EGP per dollar. Earlier this was not possible. We had fixed rates, which took away capital rather than retaining it. The shift to a flexible exchange rate framework has proven to be an important tool in absorbing external shocks, and I think the CBE will not hesitate to allow the pound to gradually depreciate as long as more money is coming in.

lover: Can you see some opportunities for Egypt?

ez al-arab: I believe the conflict provides an opportunity for Egypt as it offers a host of options for the Strait of Hormuz: the Sumed pipeline (2.5 Mb/d capacity), as well as a potential bridge to Saudi Arabia’s Red Sea pipelines (5 Mb/d capacity). This positions Egypt as a strategic partner in the current crisis while also providing the country preferential access to the congested oil market.

Additionally, the situation will have a positive impact on the Suez Canal. Ships that used to go through the Strait of Hormuz to reach the Gulf countries will now probably land in Jeddah and Yambu on Saudi Arabia’s west coast. So everything coming from Europe will now pass through the Suez Canal with less risk, as will all traffic coming into or out of Saudi, even in the case of oil or products. Another potential benefit is that recent regional tensions may prompt some travelers to consider alternative destinations, and Egypt remains well positioned given the strength and diversity of our tourism sector.

lover: How is this situation affecting the three million Egyptians working in the Gulf, especially in Saudi Arabia and the United Arab Emirates?

ez al-arab: I think that anyone who does not have a second residence in Egypt will start to think about buying one, and this should have a positive impact on the demand for real estate. But on the other hand, we would not want to see the economy in the GCC affected as possible job losses or migration of workers could ultimately lead to a decline in remittances.