The Suez Canal is key not only to global trade but also to Egypt's economy. Cairo is trying to use diplomacy to prevent an escalation in the Middle East, but does it have the leverage to do so?
The Suez Canal is just over 193 kilometers long. This waterway, which connects the Mediterranean and the Red Seas, saves ships sailing between Europe and Asia a 10,700-kilometer round trip around the Cape of Good Hope.
Since its opening in 1869, the canal has been among the world's most important trade routes. But since the Houthis began blocking international shipping in the Red Sea, many vessels have been avoiding the Suez Canal.
The complex puzzle facing Egypt
The war between Israel, the United States and Iran, as well as the Houthis' recent threats to take control of the Bab al-Mandeb Strait, pose risks to one of Egypt's most important sources of revenue. According to President Abdel Fattah al-Sisi, the country lost about $7 billion in revenue from the Suez Canal in 2024 alone. At times, the losses amounted to about $800 million a month, Reuters reports, citing the Egyptian presidential administration.
Egypt is in a difficult economic situation, Stefan Lucas of the Middle East Minds think tank told DW. However, the canal's revenue in the fiscal year 2025-2026 actually increased initially, as additional oil from the Persian Gulf was transported through Saudi pipelines to the Red Sea and then through the Suez Canal. However, if the Houthis' threatened blockade of the Bab al-Mandeb Strait is carried out, this alternative model will fall apart, and at a time when rising energy prices and reforms at the International Monetary Fund are already severely limiting Cairo's financial freedom.
Indebtedness, inflation, instability
"Higher energy prices have made imports more expensive and fueled inflation, while uncertainty in the Red Sea and possible obstacles to passage through the Bab al-Mandeb Strait threaten the Suez Canal's revenue," says Hannah Voss, a Middle East expert at the Friedrich Ebert Foundation. Tourism, investment and the Egyptian pound's exchange rate also react to any escalation in tensions. Egypt is heavily indebted and relies on loans from the IMF, as well as investment and financial assistance from Gulf states.
According to information from the "Associated Press", revenues from the Suez Canal have fallen from $10.25 billion in 2023 to about $4 billion in 2024. At the same time, the number of ships passing through has decreased from more than 26,000 to just over 13,000. Many ship owners have diverted to the sea route around the Cape of Good Hope, although it is about 10,700 km longer.
Egypt is affected by the conflict with Iran not so much militarily as economically. Although the economy initially stabilized after the crisis in late 2023, capital outflows, rising energy costs, a decline in tourism and losses from the Suez Canal threaten the country's recovery. And key reforms have never been implemented. The government is increasingly relying on large state projects and assets controlled by the military, while investment and private growth remain in the background, the Carnegie Institution explains. The result is a growing dependence on foreign loans and investments.
"Interest in rapid de-escalation"
"Egypt has an interest in very rapid de-escalation", explains Hanna Vos, which is why Cairo supports mediation efforts. At the same time, the government is seeking to maintain its relations with the United States, Saudi Arabia and the UAE while avoiding open confrontation with Iran. The think tank Chatham House describes this policy as “consistent risk management.” The goal is not to resolve the regional power struggle but to minimize the economic losses for Egypt.
“The Sisi regime is once again pursuing a dual strategy,” says Stefan Lucas. Externally, Egypt is demonstrating solidarity with Saudi Arabia, denouncing the Houthis’ threats and strengthening security measures along the Suez Canal. Behind the scenes, however, Cairo is seeking to establish channels of dialogue with Tehran. The reasons for this are both its financial dependence on the Gulf states and the fear that the canal itself could become a target.
"All neighboring countries have an interest in stabilizing the regional order, because they simply cannot afford to let the crisis continue," says the Friedrich Ebert expert. This is precisely the dilemma facing Egypt. For Cairo, it has long been more than just a question of foreign policy. Any escalation of tension in the Red Sea costs the country much-needed foreign exchange reserves, and any easing of tensions increases the chances of economic recovery. "The decisive factor will be whether the blockade remains symbolic or has a real impact," sums up Lucas of "Middle East Minds".