Egyptian President Abdel Fattah el-Sisi and U.S. President Donald Trump in Sharm El-Sheikh, Egypt, in October, 2025.Evelyn Hockstein/Reuters
Egyptian President Abdel Fattah El-Sisi did not support, or need, the U.S. and Israel war on Iran. On March 30, when oil prices galloped to US$115 a barrel, almost double their price in December, he practically begged Donald Trump to park his warplanes.
“I’m saying to President Trump, no one can stop the war in our region, in the Gulf, except for you. Please help us end the war. You are capable of that,” he said at an Egyptian energy conference in Cairo.
The outcry was rare for Mr. El-Sisi, who is always careful to project an authoritative, even stoic demeanour in public. In this case, his comments seemed an almost emotional plea for peace so his country could avoid economic and financial torment.
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Egypt imports more energy than it exports. The country is also highly indebted and suffers from double-digit inflation. Rising energy costs will almost certainly lift both inflation and interest rates, making the dollar-denominated debt of Egypt and other developing countries more expensive to repay.
Economists and finance ministers everywhere are watching Egypt closely, as if it is the canary in the debt coal mine. Egypt – a big regional economy with a population of 120 million – has not been attacked by Iran, but it is fully exposed to the price and trade shockwaves unleashed by the war.
By now, we know that financial crises are rarely isolated, that contagion can spread far and wide in a hurry (see the European damage unleashed by the 2010 Greek debt crisis). An economic crisis in a country as large as Egypt would not be contained; it could sprint across the entire Middle East and beyond.
Customers at a gas station in Cairo on April 1. Egypt imports more energy than it exports.Sayed Hassan/Getty Images
Egypt’s economic and debt vulnerabilities explain why it is trying to end the war that it played no part in starting. While Pakistan led the peace talks between the U.S. and Iran, geopolitical commentators said that Cairo played a key behind-the-scenes role in forging the ceasefire agreement that came into effect on Wednesday – the day after Mr. Trump warned a “whole civilization will die tonight” unless Iran reopened the Strait of Hormuz.
Mr. El-Sisi praised the ceasefire. “I pray to Almighty God that this positive development will be crowned with a permanent agreement to end the war,” he said in a statement.
By Friday, the ceasefire seemed tenuous. Israeli Prime Minister Benjamin Netanyahu rejected Pakistan’s declaration that it applied to attacks on Lebanon and said he would “continue to strike Hezbollah with force,” referring to the country’s Iranian-backed guerrillas. An Iranian minister called the Israeli strikes a “grave violation.”
Meanwhile, Hormuz, through which 20 per cent of the world’s crude oil and liquefied natural gas passes, remained largely closed, and oil prices resumed their upward trajectory after having plummeted earlier in the week. By Friday, Brent crude, the international benchmark, was at US$97 a barrel, up from its week low of US$92.
The possible unravelling of the ceasefire was bad news for Egypt and the dozens of other emerging market economies with high foreign-currency debt and fat budget deficits and inflation rates. The economies that rely on imported oil and gas are particularly exposed to potential economic chaos.
Egypt has little cushion to absorb an economic battering. Figures released by the International Monetary Fund and the Institute of International Finance put the country’s external debt alone at almost US$170-billion, equivalent to about 40 per cent of GDP. Interest payments on all debt comes to slightly more than half of total government spending, and this year’s projected budget deficit is 6.8 per cent of GDP. On top of all that, inflation is 13 per cent, the country is running a hefty current account deficit (meaning it’s a net borrower from the rest of the world) and the currency has devalued by almost half against the U.S. dollar since 2023.
Rising interest rates would boost the debt servicing bill at a time when the energy bill is surging. The government has said its energy import costs will reach US$2.5-billion in March, up from US$1.2-billion in January. To reduce energy demand, stores and restaurants have been ordered to close by 9 p.m.
People walk past shops closed early under a government-ordered curfew in downtown Cairo on April 2. Egypt ordered shops, restaurants and shopping malls to close by 9:00 p.m., hoping to curb energy bills that more than doubled because of the Iran war.KHALED DESOUKI/AFP/Getty Images
For Egypt and other countries in precarious financial health, there is a nightmare scenario: a repeat of the early 1980s debt crisis, which was brought on by soaring oil prices and rapid-fire U.S. interest-rate increases to tame inflation after the 1979 Iranian revolution. By the end of 1982, Mexico and dozens of poor and developing countries were unable to pay their dollar-denominated debts.
Worse, a global recession cannot be ruled out.
“The demand side of the world economy was already weakening well before the war,” said Karim Abadir, an Egyptian economist at Imperial College London and the American University in Cairo. “Now there’s a supply shock whose size and duration will have lasting consequences, obviously about inflation but also about tipping the world into a recession, which will start with job losses.”
Today’s military wars are local or regional, but the economic war unleashed by the U.S. and Israel is global. The bill will be paid by the countries that can least afford it.