Reports that US President Donald Trump formally notified Congress on Monday that hostilities against Iran resumed on July 7 drove global oil prices higher. Meanwhile, the US dollar climbed to nearly 51 Egyptian Pounds following foreign investor exits from the local debt market amid mounting geopolitical tensions.
The dollar rose above 50 pounds for the first time this month during trading on Monday, reaching 50.85 pounds on Tuesday at the National Bank of Egypt.
“Escalating tensions in global markets are prompting foreign investors to rebalance their portfolios by pulling out of stock markets and debt instruments in emerging economies, including Egypt, to offset losses incurred in developed markets,” Walaa Ahmed, head of research at Prime Securities, told Al Manassa.
Foreign investors recorded heavy sales in Egypt’s bond and treasury bill market on Monday totaling 42.1 billion pounds (about $830 million) according to data from the Egyptian Exchange.
In energy markets, Brent crude futures rose to around $87 a barrel on Tuesday, about 15% higher than four days earlier, reflecting growing concerns over the continuing closure of the Strait of Hormuz.
“The rise in Brent crude prices is driven by a large number of companies moving to secure their oil needs amid uncertainty over when the conflict will end,” Mostafa Shafie, head of research at Ostoul Capital, told Al Manassa.
Brent crude futures returned to below $100 a barrel in May following efforts to end the US war on Iran, before climbing again during recent trading sessions.
Shafie added, “Oil prices could exceed $100 a barrel if geopolitical tensions and instability persist in the coming period.”
Iran recently announced that it had once again closed the Strait of Hormuz, one of the world’s most important shipping lanes for petroleum cargoes, until further notice. In response, the US president called for a 20% tariff on all shipments passing through the strait, saying it would compensate for the role the United States plays in protecting the waterway.
“Imposing a 20% transit fee on ships passing through the Strait of Hormuz will increase transportation and shipping costs, in addition to higher insurance costs resulting from continued geopolitical tensions in the region. As these costs rise, global oil prices increase,” Ahmed said.
The Prime Securities research head added that these global developments would contribute to faster inflation in Egypt, particularly as energy-related goods account for around 20% of the country’s imports.
Egypt’s annual inflation rate rose to 13.5% in March following a domestic fuel price hike, before easing over the following months to 12.2% in June.
Global energy prices are expected to be one of the key factors determining fuel prices in Egypt after the Egyptian prime minister announced several weeks ago that the Fuel Automatic Pricing Committee would resume its work starting this July.
On the outlook for the dollar exchange rate, Ahmed said escalating tensions between the United States and Iran could keep the dollar trading at 50–52 pounds in the coming period. Shafie, meanwhile, expects the dollar to rise to 55 pounds if tensions in the region worsen.
