Iran Conflict Sparks Risk, And Opportunity, For Egypt: CIB Chief Hisham Ezz Al-Arab

As the regional conflict involving Iran escalates and shipping through the Strait of Hormuz comes to a near standstill, business leaders across the Middle East are considering both the risks and the potential opportunities. Hisham Ezz Al-Arab suggests that some oil shipments may go through the Suez Canal.

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

World Currencies: How does the current war in Iran affect the economy and the financial sector of the region?

Hisham Ezz Al-Arab: The region is facing a lot of uncertainty as markets are reacting more strongly than they did during the 12-day war last June. Oil prices have crossed the $100/bbl mark for the first time since 2022 due to the closure of the Strait of Hormuz, which controls about 25% of the world’s oil and 20% of gas exports, in addition to refineries closed due to security risks. This poses a major risk to the GCC countries, especially Qatar and Kuwait with high oil production and dependence on the Strait of Hormuz, as well as increased freight and insurance costs.

GF: What is the impact on Egypt?

Ezz Al-Arab: In the short term, the situation affects Egypt in terms of uncertainty. Emerging markets – including Egypt – saw large portfolio outflows, mainly putting pressure on the Egyptian pound and reversing its progress against the US dollar over the past year to hit record lows. This then triggered a surge in safe-haven assets, including the USD and gold, as risk-averse investors pulled their funds out of emerging markets. In the longer term, risks include a resurgence of inflation and Central banks holding rates.

GF: What’s your opinion on the monetary adjustment?

Ezz Al-Arab: I think the central bank (CBE) is doing a very good job with its flexible approach to managing the exchange market, especially in terms of remittances. Since a significant amount of merchandise was not damaged – estimated at $7 billion-$8 billion for a total of $35-$40 billion – the CBE allowed the pound to go from 47 to 53 EGP per dollar. In the past, this was impossible. We had fixed rates, which drove money away, rather than keeping it. The transition to a fixed exchange rate framework has proved to be an important tool in absorbing external shocks, and I think the CBE will not hesitate to allow the pound to move slightly as long as more money is flowing.

GF: Do you see opportunities in Egypt?

Ezz Al-Arab: I believe the conflict presents an opportunity for Egypt as it hosts alternatives to the Hormuz Strait: the Sumed pipeline (capacity 2.5mb/d), and being a potential bridge for the Red Sea pipelines in Saudi Arabia (capacity 5mb/d). This positions Egypt as a strategic partner in the current crisis and provides the country with exclusive access to a tight oil market.

Additionally, this situation will have a positive impact on the Suez Canal. Ships that used to pass through the Strait of Hormuz to reach the Gulf countries will probably now disembark in Jeddah and Yambu on the West coast of Saudi Arabia. So anything from Europe will now go through the Suez Canal with low risk, as well as all traffic coming to or from Saudi, even oil or products. Another possibility is that recent regional tensions may prompt some travelers to consider other destinations, and Egypt remains well-positioned given the strength and diversity of our tourism sector.

GF: How does the situation affect the 3 million Egyptians employed in the Gulf, especially in Saudi Arabia and the UAE?

Ezz Al-Arab: I think that anyone who does not have a second home in Egypt will start thinking about buying one, and that should have a positive effect on the search for real estate. But on the other hand, we don’t like to see the economy in the GCC affected because the possible job losses or the outflow of workers could lead to a decrease in remittances.