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Egypt is in the eye of Trump’s Gaza storm

14 February 2025

 

Egypt finds itself on the frontline of international geopolitical developments, with US President Donald Trump’s suggestion in late January that the Gaza Strip’s population should be permanently relocated to Jordan, Egypt and other Arab countries to make way for the US to seize and redevelop the land.

“I’d like Egypt to take people, and I’d like Jordan to take people,” said Trump on 25 January.

He reiterated his position on 4 February, telling a press conference with visiting Israeli Prime Minister Benjamin Netanyahu that Gazans should be moved to a “beautiful area with homes and safety […] so that they can live out their lives in peace and harmony”.

The idea has attracted a wave of condemnation from political leaders around the world, with Egypt being as outspoken in its criticism.

Speaking on 29 January, President Abdel Fattah Al-Sisi said the proposed displacement of Palestinians “can never be tolerated or allowed because of its impact on Egyptian national security […]. The deportation or displacement of the Palestinian people is an injustice in which we cannot participate.”

Egypt’s Foreign Ministry then issued a statement on 5 February, following a meeting between Foreign Minister Badr Abdelatty and Palestinian Prime Minister Mohamad Mustafa in Cairo, in which it said Gaza should be rebuilt “without moving the Palestinians out of the Gaza Strip”.

Trump’s idea threatens to create fresh turmoil at a time when Qatar, Egypt and others have been trying to create a follow-up peace deal between Hamas and Israel, to take the place of the initial agreement that came into effect in January and is due to expire in late May.

Economic instability

The Gaza war has already created huge problems for Egypt, in both security and economic terms. Traffic through the Suez Canal plummeted by more than 75% in 2024, as a result of the attacks on shipping by Yemen’s Houthi forces in the Red Sea. 

In October, Al-Sisi said receipts from Suez traffic were just $870m in the second quarter of the year, compared to $2.54bn for the same period a year earlier. He said Egypt had lost $6bn-$7bn in revenues in the previous 10 months.

According to Alexander Perjessy, a senior credit officer at Moody’s Ratings, the fall in Suez Canal receipts was responsible for “shaving off more than a full percentage point from the overall GDP growth rate”.

The ratings agency expects growth of 4% this year, assuming regional conflicts do not worsen. Even if the neighbourhood remains calmer, growth is likely to remain below the pre-pandemic levels of close to 5% in 2015-19.

Others are predicting similar growth levels for this year. UK-based consultancy Oxford Economics expects the economy to grow by 3.9% in 2025 – in line with Saudi Arabia and just behind the UAE. Inflation should also come down to about 18% – still high, but much lower than the 28% estimated for 2024.

Political stability is crucial for Egypt to attract the support it needs from foreign investors. In late January, Cairo sold $2bn-worth of bonds. The issuance attracted almost $10bn-worth of orders, pointing to healthy levels of investor interest. However, financing costs are rising. Perjessy estimates that interest costs “will increase to about 60% of revenue in 2025, one of the highest levels of the sovereigns we rate.”

The Egyptian economy has been bolstered in recent times by some significant deals, including a major UAE investment in the $24bn Ras El-Hekma project that was announced in February 2024. Cairo also agreed an additional $5bn loan from the Washington-based IMF in March 2024, adding to an existing $3bn IMF package from December 2022.

However, the country’s difficult economic situation has prompted Al-Sisi to warn that the reform package agreed with IMF in return for the loans may have to be reviewed.

“The programme we have agreed upon with the fund … if this challenge will hurt public opinion, that people cannot bear it, we must re-evaluate our situation,” he told a health and human development conference in Cairo on 20 October.

Cairo’s aid cut carveout

Egypt has at least avoided the worst of the cuts to US international aid, which have affected almost every other recipient.

In one of his first acts after regaining the White House, Trump suspended foreign aid payments for 90 days. However, a leaked memo from the State Department said military aid to Egypt and Israel was exempted. Annually, Cairo receives about $1.3bn by this route.

A number of defence deals have also since moved ahead. On 4 February, the State Department approved a $625m programme to modernise the Egyptian Navy’s fast missile craft and a separate $304m sale of a long-range radar system.

Incoming US Secretary of State Marco Rubio has meanwhile offered some soothing words. In a phone call with Foreign Minister Abdelatty on 23 January, Rubio thanked his counterpart for Cairo’s Gaza mediation efforts and also touched on a matter of great importance to Egypt: control of the Nile River.

A State Department readout said that the two had discussed the importance of finding a diplomatic solution to the dispute, which has been prompted by Ethiopia’s building of the Grand Ethiopian Renaissance Dam. Cairo worries the hydroelectric plant will reduce downstream flows that are vital for its survival.

In mid-October, Egypt’s Prime Minister Mostafa Madbouly told a water conference in Cairo that the dam threatened the livelihoods of more than 1 million people and could lead to 15% of Egypt’s agricultural land being lost.

The geopolitical problems to the south of Egypt have been somewhat overshadowed by the Gaza crisis, but could yet rise in prominence and raise tensions in other regional countries too. In September, Egypt sent at least two arms shipments to the Somalian government, which is locked in its own dispute with Addis Ababa over the latter’s recognition of the breakaway region of Somaliland.

Even if the Gaza crisis is resolved, there will be plenty of geopolitical issues for officials in Cairo to worry about.

Image: Displaced Palestinians set up their tents next to the Egyptian border

MEED’s March special report on Egypt also includes:

> ECONOMY: Egypt’s economy gets its mojo back
> POWER & WATER: Egypt’s utility projects keep pace
> CONSTRUCTION: Coastal city scheme is a boon to Egypt construction

READ THE FEBRUARY MEED BUSINESS REVIEW

Trump unleashes tech opportunities; Doha achieves diplomatic prowess and economic resilience; GCC water developers eye uptick in award activity in 2025.

Published on 1 February 2025 and distributed to senior decision-makers in the region and around the world, the February MEED Business Review includes:

> WATER & WASTEWATER: Water projects require innovation
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Dominic Dudley

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    > ECONOMY: Conflict bolsters case for Saudi economic diversification
    > BANKING: Saudi lenders readjust to lower lending and deposit climate
    > UPSTREAM: Aramco upstream spending gathers pace
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