Can a drowning Egypt really play Iran war mediator too?

Thanks to its longstanding policy of not hosting foreign military installations on its territory, Egypt has been spared the Iranian drone and missile strikes its Arab Gulf neighbors have absorbed in response to the U.S. and Israeli military campaign launched on Iran on February 28th.

Yet, four weeks into the war, Egypt is absorbing economic damage that in certain respects exceeds the structural damage wrought by Iran’s drones and missiles.

To comprehend why requires an understanding that Egypt’s economy at its core is built on rent collection. It levies transit fees for vessels making use of the Suez Canal, monetizes its sunshine and antiquities through tourism, and gets sizable remittances from the workers it exports to the Persian Gulf. It also attracts “hot money” from investors seeking some of the world’s highest inflation-adjusted interest rates. Operation Epic Fury has shaken all four pillars simultaneously.

Egypt’s energy security is another major point of concern. Natural gas is the primary fuel for Egypt’s electric grid, and before the war began on February 28, Egypt had two principal sources of imported gas. The first was Israel, which delivered roughly one billion cubic feet per day to Egypt through a Mediterranean pipeline. Just months before the war, Egypt and Israel signed a $35 billion contract that is set to run through 2040.

But when Israel launched its strikes, it sharply reduced the flow; Egypt is now receiving only around 50 million cubic feet per day, a 95% reduction.

The second source was Qatar, where the world’s single largest liquefied natural gas (LNG) complex was struck by Iranian missiles and has been shut down since March 2. Subsequent missile strikes badly damaged two of the facility’s 14 liquefaction units, taking out 17% of Qatar’s production capacity and 3% of the global LNG supply.

Cairo had been contracting with Qatari LNG before the war due to falling domestic production and to diversify its supply amid political turbulence with Israel; Israeli Prime Minister Benjamin Netanyahu accused Egypt of violating the Camp David accords by building up its troop presence near the border with Israel. Now, both of Cairo’s key suppliers are unable or unwilling to deliver.

As a result, Egypt’s gas import bill has more than doubled since the U.S. and Israel launched their war, according to the country's prime minister, Mustafa Madbouly. In response, the government has taken serious measures; it has raised fuel prices by 17% and ordered all shops, malls, and restaurants to close by 9 p.m. on weekdays and 10 p.m. on the weekend in order to ration electricity consumption. This has infuriated the business community.

Egypt’s response to the economic storm it faces has been to double down on its self-perceived role as mediator. Last week, President Abdel Fattah el-Sisi conducted a Gulf tour, visiting the United Arab Emirates and Qatar in one day, followed by Saudi Arabia and Bahrain the next. Throughout the trip, he reiterated solidarity with the Gulf states and condemned Iranian attacks.

Foreign Minister Badr Abdelatty has also offered moral support to Arab allies, proposing a joint security force, reviving Cairo’s decade-old NATO-style proposal. At the same time, channels with Tehran are active: Abdelatty phoned Iranian Foreign Minister Abbas Araghchi last week. According to Iran’s foreign ministry, Egypt was engaged in efforts “aimed at reducing tensions in the region.”

Indeed, Egypt’s efforts have already paid off. According to reports in the Wall Street Journal, the foreign ministers of Egypt, Turkey, Saudi Arabia and Pakistan met in Riyadh after Israel’s assassination of Tehran’s national security chief, Ali Larijani. The assembled diplomats relied on Egyptian intelligence to open a channel to Iran’s Islamic Revolutionary Guard Corps.

Through that channel, Egyptian officials put forward a proposal to halt the fighting for five days to build confidence for cease-fire talks between the U.S. and Israel. The move appears to have persuaded President Donald Trump to agree to a five-day pause (since extended another ten days) on planned strikes against Iran’s power plants and energy infrastructure. This lays the groundwork for what Trump claims are ongoing negotiations with Iran, the existence of which is denied by Iranian officials.

Although Sisi’s Gulf tour was received warmly enough by Gulf monarchs, the underlying logic of Cairo statecraft – position yourself as an indispensable mediator, and your patrons will keep you solvent – may be increasingly difficult to sustain. Mediation requires parties who are willing to talk, but the direction of some of the Gulf states — namely, Bahrain, Saudi Arabia and the UAE — is moving away from dialogue with Iran and more toward confrontation.

Saudi Foreign Minister Prince Faisal bin Farhan noted that trust with Iran has been “shattered on multiple levels.” UAE officials have been even more hawkish. In a recent op-ed, the UAE’s ambassador to Washington, Yousef al-Otaiba, argued that the war requires a “conclusive outcome” that totally dismantles Iran’s nuclear program, its missile and drone arsenals, its closure of the Strait of Hormuz, and its “terrorist proxy network.”

Additionally, the UAE is reportedly one of the most enthusiastic backers of a multinational maritime task force to reopen the Strait of Hormuz — a plan backed so far only by Bahrain in the Gulf, a country that has also served as a launchpad for strikes on Iran according to reports.

None of this bodes well for Egypt.

Cairo also faces the perception among the Gulf monarchies that Egypt has been soft on Iran. Cairo has spent the last year cautiously thawing its ties with Tehran, ending a decades-long absence of formal diplomatic relations, while also acting as a go-between for Iran and the International Atomic Energy Agency, hoping to avert the catastrophic regional war that came anyway.

When the war erupted, Gulf officials watched closely as Egyptian members of parliament pressed for condemning the Israeli and U.S. attacks on Iran, in addition to denouncing Iran’s attacks on Gulf countries in a formal parliamentary statement. Cairo’s parliamentarians have since recalibrated to emphasize condemnation of Iran's attacks, but the damage had been done.

Anwar Gargash, diplomatic adviser to the UAE president, gave the frustration a public face when he asked, “Where are the ‘major’ Arab and regional countries?”

“The Arab Gulf states were a support and partner to all in times of prosperity... So where are you today in times of hardship?” he added.

The questions were clearly aimed at Egypt. As Gargash’s words reflect, in the minds of some Gulf policy makers, there is an unspoken expectation that Egypt — boasting the Arab world's largest army and having received billions in bailouts from the UAE and other Gulf states — should be more proactive in defending Gulf states.

Indeed, the anger at Egypt’s perceived fence-sitting has been voiced so widely on social and traditional Arab media by influencers, columnists and senior diplomats like Gargash that even the Egyptian Ministry of Information issued a public statement in an attempt to bring down the temperature, stating that the spreading of “rumors” threatened the “eternal” ties between Egypt and its fellow Arab states.

For now, Goldman Sachs describes Egypt as “exposed but more resilient” than when the 2022 Russian invasion of Ukraine sent wheat and energy prices soaring. Cairo’s $53 billion in reserves and the reforms it made under the most recent International Monetary Fund program have left it better able to weather the storm. But the situation remains desperate, increasingly so if the war drags on. A recent plea by Sisi captures the stakes: “in the name of humanity.. Please, Mr. President [Trump].. Please help us stop the war.”

The deeper problem is that Egypt’s traditional lifelines are no longer guaranteed. Previous crises were resolved by Gulf largesse, but now, Gulf states are under attack and are facing their own financial constraints.

Cairo has already gone looking elsewhere: in a recent call with U.S. Secretary of State Marco Rubio, Egypt's foreign minister explicitly asked for “economic support”— a logical ask from a country whose economy is unraveling as a result of a war initiated by Washington. But given the current administration’s hostility towards foreign aid, the plea is unlikely to produce much.