By Jana al-Masry | 2024-04-02

CAIRO -- A €7.4 billion ($8 billion) deal the European Union (EU) and Egypt signed in mid March will boost energy sales to Europe and help Egypt weather a severe economic crisis.

The new strategic partnership deal includes billions in credit over coming years and stepping up gas and other energy flows to help Europe "move further away from Russian gas," a European Commission official told AFP.

The deal includes €5 billion ($5.4 billion) in loans over four years, €1.8 billion ($1.9 billion) in investments and hundreds of millions for bilateral projects, the official said.

European Commission President Ursula von der Leyen was joined in Cairo by the leaders of Austria, Belgium, Cyprus, Greece and Italy for the signing ceremony with Egyptian President Abdel Fattah al-Sisi.

The agreement includes "a package ranging from trade and investment to low carbon energy, managing migration, and education, culture and youth," she said.

Egypt has been hit hard by a series of economic shocks, including attacks by Yemen's Houthis on Red Sea shipping that have slashed Suez Canal revenues that are among the main sources of its foreign currency.

The country's external debt has ballooned to nearly $165 billion, and the cost of servicing it is expected to reach $42 billion this year.

'Qualitative leap' for Egypt

With the new deal, Egypt and the EU have opened the door to a long-term strategic partnership in various fields, experts told Al-Fassel.

Egypt made the decision to enter into the agreement with Europe despite the "relatively good" relations it has with Russia, said Cairo University economist Mahmoud Sultan.

"Russia has tried to enter the Egyptian markets forcefully and is trying to enter into long-term bilateral agreements with the Egyptian government related to trade, agriculture, energy, petrol and nuclear power plants," he said.

But Egypt made a huge strategic decision "by reaching bilateral agreements with all European countries through the EU," he added.

"Europe's move to find a new source of liquefied natural gas (LNG), which Russia [previously] had a monopoly on delivering to Europe, is a radical change in the future of European-Russian relations," he said.

This weakens "the position of Russia, which was weakened already due to the Ukrainian war and the sharp hostility with most European countries," he added.

For Egypt, the pivot "is a qualitative leap that places it in the club of major LNG exporters to the European continent," he said.

Changing market dynamics

Egypt has been trying to shift its international strategy and partnerships, Cairo University petroleum scientist Fahim Abdel Zawaq told Al-Fassel.

"The Egyptian-European move is a severe blow to Russia, and Russia has lost the pressure card it was using against European countries," he said.

Russia cut natural gas supplies to Europe in retaliation for Western sanctions imposed after it launched its February 2022 assault on Ukraine.

Two years later, market dynamics are much changed, with supply sources and routes drastically altered and the majority of Russian pipeline deliveries halted, according to a February 26 S&P Global Commodity Insights report.

Only a handful of countries still import piped gas from Russia's Gazprom, it said, with Russian LNG supplies to Europe now accounting for only a small share of Europe's overall gas imports.

"Now, with the EU giving member states the right to restrict Russian imports at the national level and Austria looking to speed up an exit from Russian gas, the remaining Russian volumes in Europe face an uncertain future," it said.

"The EU has made incredible progress since February 2022 to reduce its dependence on Russian pipeline gas imports," Akos Losz, a senior research associate at Columbia University's Center on Global Energy Policy, told RFE/RL.

Egypt expands gas exploration

"The new agreements with the EU came after strenuous efforts made by the Egyptian government," said petroleum specialist Ahmed Suleiman, who works in a semi-governmental company.

"Years ago, [Egypt] began to expand the gas exploration areas in the Mediterranean region, and was actually able to increase production to quantities reaching more than seven million tons [per year]," he told Al-Fassel.

Egypt's natural gas reserves reached 2.1 trillion cubic meters in 2022 alone, he said, which enabled it to increase its LNG exports to Europe to 71% of total Egyptian liquefied gas exports.

This is a massive increase over 2021, when it was just 31%.

The Egyptian Ministry of Petroleum also is carrying out exploration operations for 35 new wells to enhance the strategic reserves, Suleiman said.

"Egypt and the EU are moving towards renewable energies and hydrogen after the progress Egypt made in the field of electricity interconnection grids and green hydrogen," he said.

"Preparations are under way to establish infrastructure between Egypt and Belgium for undersea cables and marine energy market services."