Red Sea: Houthi attacks put pressure on Cairo

Houthi attacks on Red Sea shipping are becoming a big problem for Egypt. Many vessels now avoid Red Sea routes and Egypt's Suez Canal, putting Cairo in a dilemma.

Houthi attacks on international ships in the Red Sea have hit Egypt especially hard. As vessels have begun to avoid sailing the strait between the Arabian Peninsula and northeastern Africa, and thus the passage through the Suez Canal, the government has seen considerable income disappear.

In fiscal year 2022-23, the Suez Canal brought Egypt $9.4 billion (€8.6 billion) in transit fees. Events suggest that this year will not be nearly as lucrative. Osama Rabie, chairman of the Suez Canal Authority, said on Egyptian television that income is down 40% compared to last year. He added that ship traffic between January 1 and 11 was down 30% compared to 2023. According to the Reuters news agency, instead of the 777 ships that navigated the canal last year, only 544 made the journey in early 2024.

At the same time, traffic around the Horn of Africa increased by at least 67%, according to the International Monetary Fund's (IMF) PortWatch platform.

Egypt quickly reacted to the new security situation, hiking transit fees between 5% and 15% to dampen losses. Enforcement of the new fee schedule went into effect in January.

Egypt's economy is under pressure

Revenue loss from a lack of transit traffic in the Suez Canal hits Egypt when it is already fighting numerous symptoms of economic crisis. Among other things, it has struggled with flagging natural gas exports, less tourism and dwindling remittances from ex-pats working abroad.

German Trade and Invest (GTAI), an economic information service, predicts Egypt's GDP will shrink from roughly $475 billion in 2022 to about $357 billion by the end of 2024. Public debt is currently approximately 88% of GDP, and numbers also indicate that inflation will likely rise to more than 32%.

Economist Ahmed Zikr Allah, a former professor at the Al-Azhar University in Cairo who now teaches in Istanbul, Turkey, told DW that Egypt is facing an even more severe economic crisis due to the situation in the Red Sea.

"At the moment, more than half of all Egyptians are likely living below the poverty line. That means the loss of income from the Suez Canal is hitting the country harder still."

This, coupled with the fall of the Egyptian pound, could put the Cairo government in a position where it cannot pay off its debts, he said. "Then the country would be dependent upon another IMF loan."

Egypt won't participate in military action against Houthis

Still, Egypt has said it will not participate in military operations to ensure safe passage for vessels in the Red Sea. Stephan Roll, an Egypt expert at the Berlin-based German Institute for International and Security Affairs (SWP), says Cairo has good reason not to. The government in Cairo, said Roll, will have no doubt recognized that operations like those the UK and US are now conducting have no chance of guaranteeing safe passage for vessels in the region long term.

"The idea that one could hit the Houthis so hard with targeted attacks that they would no longer be able to or even want to attack ship traffic again is a little naive. I think Cairo probably sees it that way, too."

When Egypt's Foreign Ministry addressed the issue last Friday, it did so with great reluctance. The ministry voiced "deep concern" about the escalation of military operations in the Red Sea, saying, "It is critical to harness international and regional efforts to reduce tension and instability in the region, including the security of ships transiting the Red Sea," in what was more of a diplomatic explanation than a clear listing of concrete options.

There was no talk of military engagement or even participation in US initiatives directed at the Houthis. The only Arab nation that has joined the US-British coalition is the tiny Gulf state of Bahrain.