Arab Finance: CI Capital expects that every 10% increase in global oil and natural gas prices would raise Egypt's annual fuel import bill by around 26%, or $6 billion, the Cairo-based diversified financial services group said in a recent report.

The investment bank also forecasts that every 10% increase in local gasoline and diesel prices would raise the minimum inflation rate by around 2.4%.

Additionally, CI Capital said the recent average 12% increase in electricity prices would have only a limited impact on inflation, adding that the government's decision to raise electricity tariffs reflects its commitment to passing energy cost increases that exceed budget allocations onto consumers.

The report noted that Egypt continues to rely heavily on imported oil and natural gas to bridge the gap between domestic production and consumption, leaving the country more exposed to price volatility stemming from geopolitical tensions.

Under that scenario, CI Capital expects inflation to reach at least 16% by the end of fiscal year (FY) 2026/2027. The firm said the inflationary effect would depend largely on whether the government introduces further adjustments to diesel and other fuel prices.

Egypt remains exposed to global energy price volatility because it imports roughly one-third of its energy requirements to cover the gap between domestic production and consumption, Sara Saada, senior macroeconomic analyst at CI Capital, told Al Arabiya Business.

The pressure on the import bill could exceed the direct increase in commodity prices when geopolitical tensions also drive up freight and insurance costs, she added. Saada said the external sector would therefore bear the greatest impact of higher energy prices, while the effect on the state budget would remain comparatively limited.

That exposure was evident during the global energy shock in March, when the war involving Iran and disruptions to shipping through the Strait of Hormuz drove Brent crude and liquefied natural gas (LNG) prices up by 63% and 55%, respectively. Egypt’s monthly oil and natural gas import bills subsequently increased by 108% and 195%, according to figures previously cited by Prime Minister Mostafa Madbouly.

The fiscal effect is expected to remain contained following reforms that allow the government to review fuel and electricity prices periodically and pass unbudgeted increases in energy costs on to consumers, Saada said.

On monetary policy, CI Capital expects the Central Bank of Egypt (CBE) to maintain positive real interest rates of between 4% and 5%. Saada pointed out that policy may need to be reassessed if inflation remains above 15.5%, particularly if geopolitical tensions cause wider supply-chain disruptions and more persistent secondary price pressures.

Still, CI Capital’s baseline scenario points to the CBE keeping interest rates unchanged at its August 20 meeting. With oil prices around $85 per barrel, Saada said current market conditions did not yet warrant another adjustment to domestic fuel prices, limiting the immediate case for tighter monetary policy.