Egypt's fuel subsidies: Priced for wishful thinking
On April 11, Finance Minister Ahmed Kouchouk held a press conference to outline key features of the budget for the coming fiscal year 2026/27. The government’s projections are based on an average price of $75 per barrel of crude oil, a figure notable for its optimism, given that the spot price for Brent crude had reached $119 per barrel just one day prior.
Amid these projections, Kouchouk drew the attention of observers by indicating that the fuel subsidy budget for the upcoming fiscal year would be capped at approximately 16 billion Egyptian pounds (about $305 million). This represents a drastic reduction from the current year’s allocation of roughly 75 billion pounds (about $1.43 billion).
Analysts suggest that the convergence of these two factors—understated price estimates and slashed subsidy spending—points toward imminent hikes in domestic fuel prices.
IMF commitments and subsidy cuts
The sharp reduction in fuel subsidy allocations diverges significantly from the spending levels projected for Egypt by the International Monetary Fund for the 2026–2027 period.
Mostafa Shafie, head of research at Arabia Online Securities, told Al Manassa that the restricted subsidy budget reflects the government’s intent to honor its commitments to the IMF to curb energy-related fiscal burdens.
The Ministry of Finance has historically struggled to adhere to the fuel price indexation mechanism agreed upon with the IMF—a formula intended to link domestic energy costs to international market fluctuations. However, during the fifth and sixth reviews of the current loan program, the government pledged to begin full compliance with the mechanism at the start of the new fiscal year in July.
The commitment was made in February, prior to the outbreak of the US-Israeli war on Iran. The conflict has since driven global energy prices upward with unprecedented volatility, complicating the government’s ability to maintain the indexation formula without substantial domestic price increases.
In response to the initial war-driven price surge, authorities implemented an exceptional fuel price hike on March 10, with the prime minister warning that continued hostilities could lead to further adjustments.
Behind the optimism in energy prices
Market analysts have expressed skepticism regarding the Ministry of Finance’s energy price forecasts, which appear disconnected from international institutions’ expectations of sustained high prices even if the conflict subsides. The ministry’s forecast is also markedly more optimistic than its own estimates in previous budgets drafted during periods of greater global stability.
“The issue lies not merely in the $75-per-barrel estimate, but in a systemic institutional bias toward optimism.” said Mohamed Fouad, an economist and head of the Justice Party’s parliamentary bloc.
Fouad noted to Al Manassa that while Egypt projects $75, the IMF’s baseline scenario sits at $82, and other major financial institutions are forecasting a range between $80 and $88.
Conversely, Fakhry El-Fiqy, former chair of the parliamentary Budget and Planning Committee, suggested the lower estimate might be predicated on an assumption that the war will conclude soon. “The government looks at the expected average price of a barrel over the entire fiscal year, not short-term peaks. The budget covers 12 months starting in July, while the current spikes may be temporary in nature,” El-Fiqy said.
Regional uncertainty and market scenarios
Even if the conflict is resolved, experts warn that global oil prices may remain elevated due to damage to infrastructure in oil-producing Gulf states and lingering uncertainty surrounding the potential closure of the Strait of Hormuz.
Mina Rafik, director of trading at Prime Investment, told Al Manassa that Brent crude is expected to average around $90 throughout the current calendar year, driven by regional instability and disruption to maritime traffic in the Strait of Hormuz.
Rafik identified several potential catalysts for further price adjustments, including the gap between budget estimates and actual spot prices, exchange rate fluctuations, and the possibility of larger oil-price shocks. He noted, however, that aggressive energy-rationing plans by the government could theoretically reduce consumption enough to avoid some price hikes.
Shafie shared a similar outlook, predicting a floor of $90 for crude prices due to infrastructure damage. He pointed to the contradiction between the $75 budget peg and recent statements by the prime minister suggesting Brent crude could reach $150 per barrel.
Despite the bearish outlook for consumers, Shafie noted that any forthcoming price adjustments would likely be implemented gradually. “Future movements are likely to be calculated and phrased with caution, reflecting the sensitivity and complexity of the fuel file,” he said.