By using ECSS site, you agree to the Privacy Policy and Terms of Use.
Accept
ECSS - Egyptian Center for Strategic StudiesECSS - Egyptian Center for Strategic Studies
  • Home
  • International Relations
    International Relations
    Show More
    Top News
    Egyptian-Greek Trade Relations to Prepare for the Next Step
    September 1, 2020
    Iran’s nuclear program: New contexts and possible scenarios
    April 17, 2021
    The Sino-Australian Rising Rivalry in the Indo-Pacific
    October 16, 2021
    Latest News
    Looking West: India’s Strategy and Relations with Egypt
    February 4, 2023
    Messages from the Polisario Front’s 16th Congress
    February 1, 2023
    A Trump Card: Morocco Maximizes Benefit from Phosphate Amid Ukraine War
    January 31, 2023
    Engaging in Brinkmanship: Scenarios for Escalation in the Korean Peninsula
    January 12, 2023
  • Defense & Security
    Defense & Security
    Show More
    Top News
    Israel’s Cyber ​​Dome: Hallmarks and Motives
    Israel’s Cyber ​​Dome: Hallmarks and Motives
    August 15, 2022
    A Multi-dimensional Affair: Women and Terrorism in Africa
    June 14, 2020
    Messages of military drills: Is the region on the brink of a new war?
    April 5, 2021
    Latest News
    Reasons and Ramifications of Al-Shabaab’s Retreat from its Positions
    January 30, 2023
    Task Force 59: The New US Military Deployment Pattern in the Middle East
    November 30, 2022
    The Future of Relations between Al-Qaeda, Taliban and Islamic State After Al-Zawahiri’s Death
    August 27, 2022
    Israel’s Cyber ​​Dome: Hallmarks and Motives
    August 15, 2022
  • Public Policy
    Public Policy
    Show More
    Top News
    Trade between Egypt and Nile Basin Countries
    April 22, 2021
    Volunteering in Egypt: Towards a Paradigm Shift
    March 15, 2022
    The domino effect: Global chip shortage crisis hits the Egyptian market
    June 5, 2021
    Latest News
    How will Forward Exchange Contracts Affect Egypt’s Market Stability?
    January 24, 2023
    Egypt’s Economic Gains from COP27
    December 14, 2022
    Global Crisis: Whither Inflation?
    December 8, 2022
    Climate Finance: Financial Resources and Investments to Address Climate Change
    December 4, 2022
  • Analysis
    • Analysis
    • Analytical article
    • Opinions Articles
  • Activities
    • Conferences
    • ECSS Agenda
    • Panel Discussion
    • Seminar
    • Workshops
  • ECSS Library
    • Books
    • Digital Editions
    • Periodicals
    • Special Editions
  • العربية
  • Advertise
All Rights Reserved to ECSS © 2022,
Reading: The Repercussion of Reduced Oil Prices amid the Coronavirus on Egypt’s Economy
Share
Notification Show More
Latest News
Looking West: India’s Strategy and Relations with Egypt
International Relations
Messages from the Polisario Front’s 16th Congress
International Relations
A Trump Card: Morocco Maximizes Benefit from Phosphate Amid Ukraine War
International Relations
Danger and Opportunity
Opinions Articles
Reasons and Ramifications of Al-Shabaab’s Retreat from its Positions
Defense & Security
Aa
ECSS - Egyptian Center for Strategic StudiesECSS - Egyptian Center for Strategic Studies
Aa
  • اللغة العربية
  • International Relations
  • Defense & Security
  • Special Edition
  • Public Policy
  • Analysis
  • Activities & Events
  • Home
  • اللغة العربية
  • Categories
    • International Relations
    • Defense & Security
    • Public Policy
    • Analysis
    • Special Edition
    • Activities & Events
    • Opinions Articles
  • Bookmarks
Follow US
  • Advertise
All Rights Reserved to ECSS © 2022, Powered by EgyptYo Business Services.
Public Policy

The Repercussion of Reduced Oil Prices amid the Coronavirus on Egypt’s Economy

Dr.Mohamed Shady
Last updated: 2022/11/02 at 10:37 PM
Dr.Mohamed Shady
Share
14 Min Read
SHARE

In April 2020, global oil prices plummeted to a low of $18.3 per barrel, the lowest price since June 1999 when the average was set at $15.8 per barrel. Reduced oil prices should work in favor of the economy in Egypt, a net oil importer. However, the decline in oil prices affects the Egyptian economy in other ways, as explained here. 

First: The balance of oil in Egypt

Egypt is a net importer of oil. Even though it imports much of its needs oil, it exports quantities from its domestic production. Domestic oil production has reached 539,000 barrels per day in fiscal year 2018/2019, down from 542,000 barrels a day a year earlier.

Egypt’s natural gas production increased at record rates, reaching 6.4 billion cubic feet in 2018/2019, up from 5.2 billion cubic feet the year before. The figure shows the development of oil production from different petroleum products:

Figure 1 – Petroleum products in 2013/2014 – 2018/2019 (daily)

The figure shows that with the exception of oil, Egypt’s production has grown, especially of natural gas in the past three years. Foreign companies operating in the sector increased their investments, after they obtained their arrears from the Egyptian government, either for the purpose of developing the existing fields and facilities, or exploring and discovering more fields. However, this growth did not change Egypt’s position as a net importer of oil due to the large domestic demand for energy products in general, which creates a consumption gap illustrated by the following figure for both oil and natural gas:

Figure 2 – The evolution of the consumption gap of oil and natural gas in 2010-2019


The figure shows the continued existence of a gap in oil consumption, which amounted to 53,000 barrels per day in 2019 on average, while the deficit in natural gas consumption, which reached nine billion cubic meters in 2017, turned into a surplus in 2019 by about four billion cubic feet. This surplus is limited, compared to what was achieved in the first decade of the century, reaching in 2010 about 15 billion cubic meters that were destined for export. Therefore, Egypt’s oil trade balance remains in a state of deficit, which is illustrated by the following figure:

The figure shows that Egypt has turned into a net importer of oil in 2012, achieving a surplus in 2010 of $1.27 billion, which decreased in 2011 to $0.65 billion, and then turned into a deficit in 2012 of $4.6 billion, under the pressure of the decline in the domestic production of gas and the rising global prices. Oil prices reached their highest annual averages ever of $111.63 per barrel of Brent, and this deficit reached its peak in 2015 at an average of approximately $7.5 billion. Then, a gradual decline began, reaching in 2019 about $4 billion. During the past 10 years and until May 2020 this deficit cost the country about $32.1 billion.

During the first five months of every year between 2010 and 2020, the value of national oil exports decreased to the lowest level in 10 years to $0.95 billion as a result of lowered prices. These exported quantities are lower than the average exports for the same period in 2010-2020, and the value of imports came close to their lowest levels ever at $2.79 billion, and thus came below the average in the same period at $3.47 billion. This is what created a deficit in that period that amounted to approximately $1.84 billion. The following figure shows the series of oil exports and imports in the first five months during the study period:

Figure 3 – The value of oil exports and imports in Egypt during the first five months of every year between 2010 and 2020

Oil ExportsOil ImportsDeficit
The first five months of 20200.952.79-1.84
The average value2.383.77-1.02
The highest value3.905.571.00
The lowest value0.952.26-2.85

Despite the decrease in oil prices, the effect on the volume of Egyptian imports was not positive compared to the same period of the previous 10 years. This may be partly due to the Egyptian authorities’ tendency to accumulate quantities of oil and raise the strategic stockpiles when prices decrease, which caused an increase in imported quantities during the first five months of the year compared to the same period of past years. This cannot be confirmed at the present time, as there is no public census on the imported quantities or the size of the Egyptian oil stockpiles.

Second: The effect on Egypt’s state budget

To alleviate the economic burden on the general public, the state subsidizes oil products as part of the state budget’s Chapter IV concerning subsidies, grants and social benefits. The economic reform program Egypt embarked on in 2016/2017 to deliver subsidies to those who deserve them, particularly in food items and social solidarity pensions, affected the allocations of oil subsidies in the state budget.

Figure 4 – Allocations of oil subsidies in the state budget in 2009/2010-2020/2021

The figure shows allocations for oil subsidies declined from their peak in fiscal year 2013/2014 at EGP 126 billion to their lowest in 2020/2021 at EGP 28 billion, or about a fifth of the sum less than six years earlier. Oil allocations in the state budget’s subsidies decreased from their peak in fiscal year 2009/2010 at 65 percent to their lowest of seven percent in the current fiscal year. The total of these decreases leads to a reduction in the burden of subsidizing petroleum products on the state, which reduces the levels of spending on this item and reduces the budget deficit. This trend is reinforced by a decrease in the price of oil, as the first five months of 2020 were received in the second half of the fiscal year 2019/2020 budget, during which the general budget had expected oil to reach $68 per barrel, as the following figure shows:

Figure 5 – The difference between the budget estimates for the price of oil barrel, and the actual price.

The figure shows that the actual price of the average months of the fiscal year 2019/2020 was $51.3 per barrel, down $16.7 per barrel. If Egypt suffered from a deficit of 53,000 barrels of oil per day in 2019, and assuming that the same figure applies to the fiscal year, the savings resulting from the decrease in the price amount to $323.06 million, or the equivalent of EGP 5.16 billion at the exchange rate of EGP 16 per dollar. In July and August 2020/2021, the average price of oil was set at $44 a barrel, down $17 from the state budget forecast of $61, which makes the savings, according to the same previous estimate, amount to $54 million, or EGP 864.9 million.

Third: Indirect influential factors

Oil affects the Egyptian economy through indirect factors, the most important of which is the Suez Canal. It is assumed that the low price of oil leads to international shipping companies replacing the Suez Canal by the Cape of Good Hope, so that the value of the transit fees during it is replaced by consuming more oil at a lower price, which reduces the canal’s revenues in general. This effect has appeared since May 2020, when revenues began to decline from $476 million in April to $444 million. In June Suez Canal revenues registered $406 million, which is the lowest monthly income achieved by the canal since February 2017, when its revenues reached only $375.8 million, as the following figure shows:


Figure (6): The impact of low oil prices on Suez Canal revenues

It is worth noting that this effect is related to the pressure of the coronavirus on global trade, which resulted in its contraction as a result of the closure of a large number of factories because of the lockdown and the implementation of the rules of social distancing, which is the same effect that resulted in the decline of oil prices in the first place.

Among the most important indirect factors are the economic pressures that the coronavirus imposed on the economies of the Gulf countries, where a large number of Egyptians work. Remittances are the second most important source of foreign currency flows to the Egyptian economy. The economies of the Gulf countries have been affected as a result of the sharp decline in oil prices and the subsequent decrease in the quantities sold as a result of OPEC + agreements to reduce production to reduce supply and thus control the price in global markets. This led to increasing the state budget deficit in most of these countries, which led to a decrease in growth rates, and the loss of a large number of job opportunities, including those occupied by Egyptians, as well as decreasing salaries. Remittances increased in the third quarter of fiscal year 2020/2021, as the following figure shows:

Figure 7: Remittances from Egyptians working abroad

The figure shows an increase in total remittances in the third quarter of the fiscal year to $7.87 billion, either on an annual basis from $6.17 billion in the third quarter of 2018/2019, or compared to the second quarter of 2019/2020, when it reached $6.96 billion. However, the real impact of lower prices will not show until the last quarter of the fiscal year, which is why these remittances are likely to decrease significantly.

The reduction in global oil prices affected the Egyptian economy in more ways than one. The repercussions, following the coronavirus crisis, seem mostly on the downside. However, the reduction in oil prices helped the state budget by decreasing oil subsidies. The result strongly contradicts with the prevailing belief that this decline worked for the benefit of the Egyptian economy; the matter that affirms the need for a complete reassessment of the impact of the crisis on the Egyptian economy on several fronts.

Related Posts

Looking West: India’s Strategy and Relations with Egypt

Messages from the Polisario Front’s 16th Congress

A Trump Card: Morocco Maximizes Benefit from Phosphate Amid Ukraine War

Reasons and Ramifications of Al-Shabaab’s Retreat from its Positions

TAGGED: Coronavirus, Egypt, Featured, Oil, Oil prices, Suez Canal
Dr.Mohamed Shady September 20, 2020
Share this Article
Facebook Twitter Whatsapp Whatsapp LinkedIn Telegram Email Copy Link Print

Stay Connected

Facebook Like
Twitter Follow
Instagram Follow
Youtube Subscribe

Latest Articles

Challenges of Protecting Egypt’s Heritage
Challenges of Protecting Egypt’s Heritage
Public Policy December 5, 2021
Gunboat Diplomacy: Motivations and Expected Scenarios of the Russo-Ukrainian Escalation
Gunboat Diplomacy: Motivations and Expected Scenarios of the Russo-Ukrainian Escalation
International Relations February 21, 2022
Netanyahu’s Government: Composition, Policies, and Means of Confrontation 
Opinions Articles January 9, 2023
Pressure Card: Water between Turkey, Iran, and Iraq
International Relations October 3, 2021

Latest Tweets

International Relations

  • African Studies
  • American Studies
  • Arab & Regional Studies
  • Asian Studies
  • European Studies
  • Palestinian & Israeli Studies

Defence & Security

  • Armament
  • Cyber Security
  • Extremism
  • Terrorism & Armed Conflict

Public Policies

  • Development & Society
  • Economic & Energy Studies
  • Egypt & World Stats
  • Media Studies
  • Public Opinion
  • Women & Family Studies

The Egyptian Center for Strategic Studies is an independent non-profit think tank, providing decisions-makers by Policy alternatives, the center was establised in 2018 and comprises a group of experts and researchers from diffrent generations and scientific desciplines. 

All Rights Reserved to Egyptian Center for Strategic Studies - ECSS © 2022

Removed from reading list

Undo
Welcome Back!

Sign in to your account

Lost your password?