Egypt Bets on Overland Libyan Crude While Hormuz Stays Shut

Egypt's refining hub in Alexandria has been operating without its usual Gulf crude deliveries since the Strait of Hormuz was shut to normal commercial traffic on February 28, 2026, at the start of the war between Iran and a US-Israeli coalition. Kuwait Petroleum Corporation declared force majeure on crude oil and refined product exports on March 7, 2026, after the waterway had been effectively closed for eight consecutive days, and issued a second, broader notice on April 20, 2026, warning customers it would not be able to meet full contractual volumes even once the strait reopens. Kuwait had been supplying Egypt with between one and two million barrels of crude per month, on top of roughly one million barrels a month from Saudi Aramco delivered under credit facilities.

The shortfall exposed a structural gap in Egypt's oil balance. Domestic crude output stands at around 500,000 barrels per day while the country's refineries are configured to process between 620,000 and 650,000 barrels per day, leaving Egypt permanently dependent on imported barrels to keep its plants loaded and its fuel market supplied. Most of that imported crude arrived by tanker from the Persian Gulf, the single route that the Hormuz crisis made unusable.

Cairo moved to demand-side rationing during the spring. From April 1, 2026, shops, malls and cafes were ordered to close at 21:00 on most days, with an extension to 23:00 on Thursdays and Fridays, in a month-long push to cut electricity use tied to the shortage of petroleum products. The government also slowed fuel-intensive public construction projects for an initial two-month period, reduced official vehicle use and expanded remote work for parts of the administration. Prime Minister Mostafa Madbouly said in March that the monthly natural gas import bill had climbed from about $560 million to roughly $1.65 billion, while imported diesel had jumped from $665 to $1,604 per tonne. Egypt raised domestic fuel prices for the first time in 2026 as a result.

The search for replacement barrels turned west. In June 2026, reporting indicated that Egypt was moving to import at least one million barrels per month of Libyan crude to cover the halt in Kuwaiti supply. The switch is not a simple swap. Libyan crude is a light waxy grade that requires heating during storage and handling and generally has to be blended with other crudes before Egyptian refineries can process it, which is the main reason Cairo had not bought it in volume before.

Following talks in Cairo between Madbouly and Abdul Hamid Dbeibah, prime minister of Libya's Government of National Unity, the two countries opened technical discussions on August 11, 2026, on an 800-kilometre crude oil pipeline running from Tobruk in eastern Libya to Alexandria. Roughly 125 kilometres of the route would sit in Libyan territory and about 495 kilometres in Egypt. The preliminary capital cost is put at more than $1 billion by an Egyptian government official quoted by regional media, with a working transport capacity of about 150,000 barrels per day. Financing, construction scheduling and final capacity remain open, and no final investment decision has been taken. A version of the same route was agreed in 1997 and revived in 2002 but was never built.

For Libya the project offers a second outlet at a moment of rising output. National production is running at around 1.43 million barrels per day of crude plus about 49,000 barrels per day of condensate, close to 1.48 million barrels per day of total liquids, and the National Oil Corporation has said it is pushing toward 1.5 million barrels per day. For Egypt, an overland link removes the tanker leg entirely and gives Alexandria refineries a supply source that no naval blockade in the Gulf can interrupt.

Conditions in the Gulf have not improved. A US-Iran ceasefire in April and a memorandum of understanding in June briefly restored limited transits from around June 17, but the arrangement broke down in early July after fresh attacks on commercial vessels, and Washington reimposed a naval blockade in early August 2026. As of August 19, 2026, the strait remains effectively closed to routine commercial shipping, with a single tracked transit recorded on August 16 against a normal baseline of roughly 73 to 88 vessels per day. Brent crude was trading at about $91.70 per barrel at 11:53 UTC on August 19, 2026.

The pipeline will not relieve the current shortage. Investment bank estimates place the average construction cycle for comparable lines at roughly two and a half years before first oil, and cross-border projects typically face longer permitting timelines on both sides of a frontier. Until then Egypt will keep covering the Kuwaiti gap with seaborne Libyan cargoes, spot purchases and continued demand restraint. The project also carries a commercial risk that both governments will have to price in. If Hormuz traffic normalises and Gulf crude returns to the market at lower prices, an overland route built for crisis conditions could struggle to compete with tanker economics over its operating life.