CIB

As the regional conflict involving Iran intensifies and shipping through the Strait of Hormuz has nearly come to a halt, business leaders across the Middle East are considering both the risks and potential opportunities. Hisham Ezz Al-Arab suggests that some oil shipments might shift to 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 the war is shaking regional financial markets, disrupting emerging economies, and putting pressure on currencies as investors rush toward safe-haven assets.

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

Hisham Ezz Al-Arab: The region faces a lot of uncertainty as markets react more strongly than they did during last June’s 12-day war. Oil prices crossed the $100/bbl mark for the first time since 2022 as a result of the closure of the Strait of Hormuz, which controls around 25% of global oil and 20% of gas shipments, in addition to refineries that shut down due to security risks. This poses a key risk on GCC countries, particularly Qatar and Kuwait with both high oil production and reliance 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 impacts Egypt in terms of the uncertainty. Emerging markets — including Egypt — have seen major portfolio outflows, particularly placing pressure on the Egyptian pound and reversing its progress against the US dollar over the past year to reach an all-time low. This has subsequently triggered a hike in safe-haven assets, including USD and gold, as risk-averse investors have reallocated their investments from emerging markets. In the long term, risks include inflation re-accelerating and Central banks keeping rates on hold.

GF: What is your take on the currency adjustment?

Ezz Al-Arab: I think the central bank (CBE) is doing an excellent job with its flexible approach to managing the exchange market, particularly regarding cash repatriation. With a significant volume of carry trades being unwound — estimated at roughly $7 billion–$8 billion out of a total $35 billion–$40 billion — the CBE has allowed the pound to move from approximately 47 to 53 EGP per dollar. In the past, this was not possible. We had fixed rates, which drove capital away, rather than retaining it. The shift to a flexible exchange rate framework has proven to be a critical tool in absorbing external shocks, and I think the CBE will not hesitate to let the pound gradually drift as long as more money is coming out.  

GF: Can you see some opportunities for Egypt?

Ezz Al-Arab: I believe the conflict provides an opportunity for Egypt as it hosts alternatives to the Hormuz Strait: The Sumed pipeline (2.5mb/d capacity), as well as being a possible bridge to Saudi Arabia’s Red Sea pipelines (5mb/d capacity). This places Egypt as a strategic partner in the current crisis as well as provides the country with preferential access to a congested oil market. 

Additionally, the situation will positively impact the Suez Canal. The ships that used to go through the Strait of Hormuz to reach Gulf nations will likely now unload in Jeddah and Yambu on Saudi Arabia’s Western coast. So whatever is coming from Europe will now go through the Suez Canal with a lower risk, as well as all the traffic coming to Saudi or out of Saudi, even in terms of oil or products. Another potential upside 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.

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

Ezz Al-Arab: I think whoever doesn’t have a second residence in Egypt will start to think about buying one, and that should have a positive impact on demand for real estate. But on the other hand, we wouldn’t like to see the economy in the GCC being impacted because potential job losses or an exodus of workers could ultimately lead to a decline in remittances.