Economic Impact Outlook of the Ongoing U.S.–Iran War: Report 2 - From a fragile truce to more entrenched pressures on energy, shipping, and the

Egyptian economy

1. ENCC institutional opening note

1.1 Short opening note

The Egyptian National Competitiveness Council (ENCC) issues this report as Report 2 within its analytical series on the economic impacts of the ongoing war between the United States and Iran. This release dated 26 April 2026 is the second update report after Reports 0 and 1, and focuses on what has materially changed since the publication of Report 1—and what that means for the global and regional economy, and especially for the Egyptian economy—consistent with the Council’s evidence-based approach and its competitiveness- and business-environment-linked economic analysis.

2. Main title

Expected Economic Impacts of the Ongoing War Between the United States and Iran

3. Subtitle

Report 2 — An analytical update after Report 1: from a fragile truce to more entrenched pressures on energy, shipping, and the Egyptian economy

4. Executive summary

4.1 Executive summary

• The period from 16 to 26 April 2026 witnessed an effective breakdown of the brief negotiation track that followed the first truce, with the failure of Islamabad talks and a return of maritime and military escalation—raising the economic risk premium again.
• The Strait of Hormuz shifted from being merely a geographic disruption hotspot to a constrained, costly, and politicized transit regime, entrenching higher shipping and energy costs even without a full and sustained closure.
• Structural damage in the regional energy system became clearer and more persistent, especially after the extended effects on South Pars and Ras Laffan, reinforcing the hypothesis of a medium‑term shortfall in gas, petrochemicals, and fertilizers.
• Global developments confirmed that the shock is no longer just a temporary price spike; it is taking a more stagflationary and entrenched form, with downward revisions to growth and heightened sensitivity to inflation and energy.
• For Egypt, shock transmission into the domestic economy intensified through three connected channels: the energy bill, food inflation, and pressure on financing conditions and local activity.
• Egypt raised domestic gas prices by about 30%, reprioritized spending and projects, kept monetary policy in a defensive posture, while the most important FX channel—Suez Canal receipts—remains without full recovery.
• In parallel, some medium‑term balancing factors appeared, such as continued reserve strength, selective financing tools, and progress in alternative energy projects and new discoveries—yet these do not remove near‑term pressure.
• The core conclusion of Report 2 is that Egypt is no longer only absorbing an external shock; it has entered a phase of managing an extended repricing of the external economy, energy, and logistics.

5. Update entry after Report 1

5.1 What did Report 0 establish?

Report 0 established the baseline reading of the war as an energy, shipping, financing, and inflation shock hitting the global and regional economy, treating Egypt as the most important applied case in the Arab region from a competitiveness, business-environment, and shock‑absorption perspective.

5.2 What did Report 1 update?

Report 1 showed that the war moved from an initial shock into a more complex phase: a short fragile truce, the transformation of Hormuz into a politically priced corridor, a direct rise in Egypt’s energy cost, and the start of demand-reduction and fiscal-pressure containment measures.

5.3 What does Report 2 add specifically?

Report 2 adds that the post‑Report‑1 period did not bring real stability; instead, it showed that: - the partial truce did not establish a normal return for markets or navigation, - energy damage became more structural, - the global economy began adapting to a longer stagflation hypothesis, - and Egypt moved from hedging to managing the cost of a prolonged shock across energy, food, shipping, and financing.

6. What materially changed since Report 1?

6.1 Conflict developments and escalation

The most important change in this period is the failure of the de-escalation track that had partially reduced escalation in early April. Islamabad talks collapsed before producing a durable agreement, pushing the United States from temporary containment toward a naval blockade and direct economic pressure on Iranian ports.

Economically, this shift matters because it moves the war from a “truce that could be extended” into a low‑intensity militarily but high‑cost economically conflict framework. Continued activity on the Lebanese front and heightened regional fragility also mean markets are no longer pricing only the possibility of open war; they are pricing a persistent uncertainty environment as a near‑permanent state.

6.2 Energy and commodities developments

In Report 2, the issue is no longer just Brent volatility; it is the entrenchment of deeper distortions in gas, petrochemicals, and fertilizer chains. Even if Brent dipped in some mid‑April sessions on hopes of diplomacy, it rose again with renewed tension, while LNG markets continued to face real tightness linked to lost capacity and logistics disruption.

The key economic implication is that energy prices are no longer set by a daily headline alone; they now rest on damage to productive infrastructure and sustained constraints in shipping and insurance. This also extends into fertilizer markets—creating a highly consequential, indirect channel into food costs.

6.3 Shipping, logistics, and trade routes

This period further cemented the idea that Hormuz and the Red Sea are not only military-risk zones, but also commercially expensive systems. The research indicates continued constraints on passage and elevated maritime costs, with a diminishing belief in a rapid return to pre‑war routes.

This matters because it raises transport, insurance, and time costs—and affects oil and gas, intermediate inputs, and final goods simultaneously. Partial reopening of some corridors does not imply a return to normal commercial viability—an important distinction in Report 2 versus Report 1.

6.4 Financial markets and macro conditions

The new update shows global markets are less willing to bet on a “transitory shock.” U.S. inflation prints, IMF warnings, downward growth revisions, and higher demand for safe havens all indicate that the global economy is increasingly internalizing the war as a longer burden.

In this context, short bouts of calm in oil or FX did not change the overall direction: financing is tighter, energy‑importing economies remain exposed to pressure, and capital cost and sovereign risk remain elevated.

6.5 Egypt-specific developments

This is where the largest material change occurred since Report 1. The crisis shifted from a higher external bill to direct domestic economic measures: - raising domestic gas prices, - delaying projects to reduce fuel consumption, - holding interest rates high defensively, - higher urban inflation, - and larger re-assessment of external debt service obligations.

In other words, Egypt entered a phase where the war is reshaping domestic economic policy decisions—not only external expectations.

7. What did not materially change?

7.1 Baseline risks still in place

• The Strait of Hormuz remains far from normal commercial navigation conditions.
• Energy and food risks remain present in the global economy.
• Energy-importing markets—Egypt foremost—remain under structural pressure.
• The Suez Canal continues operating without a full return to pre‑crisis levels.

7.2 Risks remain high without a qualitative shift

• Fragility of financing conditions in emerging markets.
• Regional tourism sensitivity to political and security developments.
• Private-sector uncertainty around costs, energy, and shipping.
• High insurance and logistics costs even without a new daily escalation.

7.3 Contingent risks still under monitoring

• The war widening into a larger direct Gulf confrontation.
• Broader disruption to Gulf oil infrastructure.
• A comprehensive and rapid normalization of Red Sea and Hormuz navigation.
• A fast improvement in Egypt’s external financing environment and peers’ conditions.

8. Updated impact assessment by level

8.1 Global economy

Global risk rose in terms of structural entrenchment, not only price peaks. The conflict is pressing on energy, transport, financing, and food simultaneously—raising the likelihood of a longer and more complex shock intertwined with global monetary and fiscal policies.

8.2 Major regional blocs

Industrial energy-importing blocs, especially in Europe, remain the most exposed through production-cost and growth channels. Asia retains relatively greater flexibility in some dimensions, but is not insulated from higher shipping and energy costs and global trade disruption.

8.3 Middle East

The Middle East remains the shock center, but with an important change: the issue is not only prices, but who has the practical ability to keep exporting or importing under high-risk conditions. This deepens the gap between adaptable producers and import-dependent or logistics‑constrained economies.

8.4 Egypt

In Egypt, material risk rose across: - imported energy, - food inflation, - Suez Canal receipts, - financing conditions, - and the business environment.

At the same time, the picture has not reached “loss of control”; key absorption buffers remain, including reserves, selective financing tools, and medium‑term energy projects.

9. Egypt: updated exposure and impacts

9.1 Energy and fuel

Energy became sharper in Report 2 versus Report 1. The higher import bill is no longer only an external-account pressure; it became a driver of domestic repricing. The decision to raise gas prices by about 30% signals the state started passing part of the cost domestically rather than fully absorbing it.

This means Egypt’s energy shock is no longer external only; it now affects: - production costs, - corporate margins, - some investment decisions, - and household/industrial spending together.

Meanwhile, gas discoveries and alternative energy projects remain an important balancing factor, but they are still medium‑term—not an immediate solution to the current shock.

9.2 Food and inflation pass-through

The food channel is clearer in Report 2. It is no longer confined to concern about imported inflation; its effects appeared in: - higher fertilizer costs, - higher local wheat procurement pricing, - faster urban inflation, - and a rising likelihood of spillover into harvest season and domestic food markets.

This is critical because food in Egypt is not just an inflation item; it is a core determinant of social stability and operating costs across a wide range of economic and consumer activities.

9.3 Exchange rate, reserves, and financing conditions

Recent outcomes show a dual picture. On the one hand: - reserves remained relatively strong, - the pound stayed within a manageable band, - and Egypt did not enter a financing collapse.

On the other hand: - external debt service estimates rose, - interest rates stayed high, - external markets remained more cautious, - and external financing became costlier.

Bottom line: Egypt still has absorption tools, but they are being used in a harder environment, making policy space more costly the longer the crisis persists.

9.4 Suez Canal, shipping, and logistics

The Suez file remains among the largest structural pressures in Egypt’s case. Persistently weaker traffic, unstable returns of major lines, and cancellation of some pricing incentives indicate the canal is operating in a logistics confidence deficit—not a brief disruption.

Economically, this matters for two reasons: 1) it weakens a vital FX source; and 2) it ties Egypt directly to regional shipping and insurance volatility—even without a direct physical shock on Egypt.

9.5 Tourism, confidence, and business sentiment

Report 2 provides a more balanced picture here. Tourism did not collapse; there are signs of resilience in some markets, especially the Red Sea, and even increases in passenger volumes through airports in some periods. This does not negate that confidence in some markets—especially those most sensitive to geopolitical risk—remains volatile.

For business, the key point is that a prolonged war environment makes: - energy less predictable, - shipping more expensive, - financing tighter, - and investment planning more conservative.

9.6 Fiscal pressures and subsidy sensitivity

Report 2 shows the state moving not only to cushion the shock, but to reprioritize fiscal choices. Delaying road projects, keeping interest rates high, and raising gas prices all signal that fiscal pressures can no longer be managed through “traditional tools” alone.

This means the subsidy/spending file is now part of a wider equation that includes: - protecting reserves, - preventing inflation from running away, - safeguarding social stability, - and avoiding excessive harm to productive activity.

9.7 Industrial production and imported inputs

Report 2 confirms pressure on Egyptian industry is no longer theoretical. Energy, transport, imported inputs, and high financing costs compress operating margins. PMI signals and cost dynamics point to a more challenging industrial environment.

Competitiveness implication: - higher cost and uncertainty reduce planning visibility, - weaken pricing and expansion capacity, - and reduce investment attractiveness in some activities.

9.8 Growth, competitiveness, and the business environment

Egypt’s bottom line in Report 2 is that the war is reshaping the operating economic environment, not only macro indicators. Pressure now comes from the interaction of: - energy, - food, - shipping, - interest rates, - the currency, - and private-sector confidence.

Therefore, the main competitiveness risk is not only today’s higher costs, but the chance these higher costs become a “new normal” for a period—reducing investment and weakening growth and productivity.

10. Update by time horizon

10.1 Immediate impact

Immediate effects are clearer domestically in Egypt: - higher energy costs, - higher inflation, - pressure on shipping and Suez receipts, - and direct government interventions to manage consumption and costs.

10.2 Short term

In the short term, risk increases for: - food inflation, - broader pass-through of energy repricing into local costs, - continued weaker investment confidence, - and the Suez Canal remaining below full recovery.

10.3 Medium term

In the medium term, the importance rises of: - delayed regional energy recovery, - shortages in some petrochemicals and fertilizers, - continued high industrial costs, - and competitiveness erosion if domestic adaptation channels do not scale fast enough.

10.4 Long term

In the long term, the key risk remains that: - trade rerouting, - insurance costs, - energy changes, - and investor preference shifts become more entrenched—requiring Egypt to build faster adaptation capacity in energy, logistics, and domestic production.

11. Scenario update

11.1 Scenario A — limited and short conflict

Probability direction: Down.
Reason: de-escalation failed and maritime/economic pressure expanded, reducing the chance of a rapid and stable containment.
Implication for Egypt: planning on a fast return to normal prices/routes is no longer realistic.

11.2 Scenario B — prolonged but regionally contained conflict

Probability direction: Stable / remains the closest baseline.
Reason: the war did not turn into a full regional explosion, but it has turned into a prolonged environment of maritime, energy, and financial pressure.
Implication for Egypt: continued pressure on energy, inflation, shipping, and financing—requiring continuous crisis management.

11.3 Scenario C — major regional escalation

Probability direction: Up relative to Report 1.
Reason: negotiation breakdown and renewed naval blockade raise the odds of wider friction even without a full Gulf-wide war.
Implication for Egypt: higher risk of renewed oil spikes and deeper pressure on shipping, the currency, and public finances.

11.4 Scenario D — maximal regional war

Probability direction: Still relatively low, but monitored.
Reason: Gulf oil infrastructure has not entered a comprehensive destruction path during this window.
Implication for Egypt: a severe tail risk remains, but it is not the primary working scenario at present.

12. What does this mean now?

12.1 Strategic interpretation

The most important economic meaning of Report 2 is that the war is no longer only a price shock; it is an extended repricing of energy, shipping, and financing risks. What changed since Report 1 is not only the diplomatic failure, but that markets, institutions, and states have begun treating the crisis as longer and more complex.

For Egypt, the most important development is that the shock has become partly domestic. Local policy decisions are now formed under war pressure: prices, spending, energy, and some investment decisions have been directly affected. This marks a shift from “external exposure” to “forced internal adaptation.”

Report 2 also shows that some Egyptian strengths remain: reserves, relative FX resilience, medium‑term projects and discoveries, and the ability to deploy selective financing. But these work as buffers—not final solutions.

Bottom line: the main risk is not only the shock itself, but managing its duration—preventing the war from turning from an energy/shipping/financing crisis into a prolonged environment of weaker competitiveness and higher cost of doing business.

13. Council considerations and recommendations to government

13.1 Immediate macro priorities

The immediate priority is to manage the shock as an integrated set of pressures, not separate files: energy, shipping, inflation, financing, and food should be read on one connected dashboard.

13.2 External sector and exchange rate priorities

Continue protecting external liquidity and reserves, improving FX allocation priorities, and avoiding the assumption that a temporary market calm equals the end of risk.

13.3 Energy and fuel priorities

Priority actions: - reduce the economy’s sensitivity to the imported energy bill, - improve demand management, - accelerate use of new discoveries/projects, - avoid turning crisis management into a permanent burden on productive sectors.

13.4 Food and inflation-management priorities

Treat food inflation as the clearest next risk—not a secondary effect. This requires early monitoring of fertilizers, domestic procurement, staples, and early targeting rather than waiting for pressures to expand.

13.5 Fiscal and financing priorities

Maintain balance between: - financial stability, - avoiding excessive contractionary domestic cost, - protecting the most sensitive groups.

This means rationing, support, and spending reprioritization tools should be precise and disciplined.

13.6 Shipping, Suez, and logistics priorities

Suez Canal and logistics should remain a top priority file—not only for revenues, but as a mirror of Egypt’s external position and regional economic role.

13.7 Industry and competitiveness priorities

Support continuity for the sectors most sensitive to energy, imported inputs, and high financing costs; margin erosion today can turn into prolonged weakness in production and investment.

13.8 Egypt’s urgent priorities under this update

• Protect reserves and external liquidity
• Manage the energy bill with more flexibility and discipline
• Hedge early against an extended food inflation wave
• Reduce the crisis impact on productive activity and investment
• Accelerate energy/logistics tracks that reduce future exposure

14. Council considerations and recommendations to business and private investors

14.1 Overall business risk posture

Firms should treat the current environment as high-risk and extended—not a temporary wave. Planning should assume continued uncertainty, not its near disappearance.

14.2 Energy-intensive sectors

Energy‑intensive sectors should recalculate costs, margins, and supply assumptions, and build multiple scenarios for energy prices and supply availability.

14.3 Food, retail, and consumer sectors

These sectors should prepare for continued pressure on real demand, higher inputs, and limited pass-through ability.

14.4 Trade, shipping, and logistics

Reassess routes, insurance, time costs, and use alternative suppliers/corridors where possible—shipping is now a structural cost factor, not just a service.

14.5 Industry and import‑dependent firms

Import‑dependent firms should review: - sourcing, - FX exposure, - working capital, - and logistics contingency plans.

14.6 Tourism and hospitality

Build on resilience in some markets while maintaining caution toward markets that are highly sensitive to regional tension.

14.7 Treasury management and financial obligations

Priority is stronger liquidity and internal financial discipline, and re-testing assumptions related to debt, FX, and financing costs.

14.8 Private investment implications and strategic planning

Investors should favor sectors that can adapt to: - higher-cost energy, - more expensive shipping, - tighter financing, - and volatile demand.

15. What should be monitored next?

15.1 Global indicators

• Oil and LNG trends
• Navigation conditions in Hormuz
• Marine insurance costs
• Energy-driven inflation indicators
• Fertilizer prices and key food commodities

15.2 Regional indicators

• Evolution of the naval blockade
• Containment vs widening across other fronts
• Gulf infrastructure stability capacity
• Trade/shipping rerouting patterns

15.3 Egypt indicators

• Monthly energy bill
• Urban inflation, especially food and energy
• Suez Canal traffic and revenues
• FX reserves
• EGP trends
• Private sector and industrial production indicators
• Tourism and passenger trends

16. Institutional closing note

16.1 Closing note

Report 2 confirms the most important development is not only that the war continues, but that it has become an extended economic environment reshaping the cost of energy, shipping, financing, and competitiveness. For Egypt, success in the next phase will be measured not only by absorbing the shock, but by preventing a temporary shock from turning into a prolonged weakening of the business environment and competitiveness.

17. Sources and evidence note

17.1 Sources and evidence

This report is based on the latest deep-research outputs built on high-trust official, institutional, market, and analytical materials—consistent with ENCC’s method of evidence gathering, comparative analysis, and competitiveness- and business-environment-linked economic assessment.

The source material used to build the report includes major categories such as: - Official and institutional sources: international institutions, relevant Egyptian official entities, and specialized monetary and sector authorities. - Market and sector sources: data providers for energy, shipping, insurance, commodities, and credit. - High-trust analytical and media sources: reference analytical and news institutions used within the attached research file.