Will Egypt Strike Back? Houthi Grip on Bab el-Mandeb Tests Cairo's Restraint

Egypt is facing a combination of pressures linked to the war launched by the United States and Israel against Iran on February 28, 2026. After a strong rebound in Suez Canal traffic over the summer, the Houthi takeover of Yemen's entire Red Sea coast in September has put the southern approach to the waterway back under threat, while disruptions in the Black Sea are complicating the country's wheat supply. As of September 30, 2026, the canal remains open and traffic is still growing, but shipping lines, insurers and the Egyptian government are closely watching the Bab el-Mandeb Strait.

The Suez Canal is one of Egypt's most important sources of foreign currency, alongside tourism, remittances from Egyptians working abroad and merchandise exports. In normal conditions the waterway carries roughly 12% of global seaborne trade. Between late 2023 and 2025, Houthi missile and drone attacks on merchant ships pushed most container lines to sail around the Cape of Good Hope instead. The International Monetary Fund estimated that this diversion cost Egypt more than $6 billion in canal revenue in 2024 alone, and President Abdel Fattah al-Sisi said in January 2026 that the country had lost about $9 billion over two years.

The situation improved after the Houthis paused their attacks following the Gaza ceasefire of October 2025. Canal revenue climbed to an estimated $1.1 billion in the last quarter of 2025, up 24.5% year on year, and reached $1.26 billion in the second quarter of 2026, the best quarterly result since early 2024. In August 2026, the canal handled 1,358 vessels against 1,070 a year earlier and earned $567.1 million, a jump of 56.7%. That figure was still about 36% below the $888.6 million collected in August 2023, before the Red Sea crisis. Part of the recent gain also comes from temporary surcharges introduced by the Suez Canal Authority on July 15, including a 12% surcharge on container ships.

The outbreak of the Iran war hit the Egyptian economy on several fronts. Shipping through the Strait of Hormuz was severely disrupted and energy prices surged. Egypt depends heavily on imported gas to generate electricity, so its import bill rose sharply and the government ordered cuts in power consumption in March. Foreign investors pulled money out of the country: their holdings of Egyptian local-currency government debt fell from $39.1 billion in February to $22.2 billion in early April, and the pound lost between 14% and 17% of its value. Inflation picked up again after months of decline. The IMF completed two program reviews in March and released about $2.3 billion to support the economy.

Some of that pressure eased from June, when a US-Iran understanding on reopening Hormuz brought oil prices down and the pound recovered much of its losses. In an assessment published on September 21, the IMF said Egypt had absorbed the shock better than expected, noting that its sovereign risk premium had fallen in August to the lowest level since 2014 and that the country had returned to international bond markets. The Fund nevertheless warned that the return of inflation to target has been pushed back by a year and that significant vulnerabilities remain. Negotiations between Washington and Tehran have since stalled, and Iran still exerts a degree of control over Hormuz.

The Red Sea became a new front in July. On July 20, the Houthis declared a blockade on Saudi ports and Saudi-linked ships in the Bab el-Mandeb, after an air strike on Sanaa airport that they blamed on Riyadh. Saudi Arabia had been sending more crude through its Red Sea terminals to bypass Hormuz. Two days later, the group claimed missile and drone strikes on the Saudi tankers Encelia and Layla, and Brent crude moved above $100 per barrel. On July 30, Saudi Arabia unveiled a Multinational Maritime Defence Alliance to protect shipping and energy routes in the Red Sea, the Bab el-Mandeb and the Gulf of Aden, and Egypt joined it. On August 24, a tanker operated by Saudi national shipping company Bahri was hit off the port of Yanbu, with no injuries reported among the crew.

In September, the Houthis launched a ground offensive along the coast. They took the districts of Hays and Al-Khawkhah on September 9, captured the port city of Mocha on September 10, then entered Dhubab and seized Perim Island, which sits in the middle of the strait, on September 11. They also took the Hanish Islands farther north. Houthi forces are now positioned about 20 kilometres from the African shore and control the Yemeni side of the chokepoint. Yemeni government forces claimed to have recovered some ground on September 13 and now hold more defensible mountain positions, so analysts do not expect another rapid advance. US media reported that Iran's Revolutionary Guards helped direct the operation, a role Tehran has played down.

Houthi officials insist that commercial navigation in the Red Sea remains free and safe, and in August they denied reports that they planned to charge transit fees. Maritime security experts point out, however, that holding both shores of the strait makes it easier for the group to strike ships, for example with artillery placed on the coast. The redeployment of naval assets toward Hormuz and the Bab el-Mandeb has also coincided with a resurgence of piracy off Somalia.

So far, the main container lines have not reversed their gradual return. In September, Maersk and Hapag-Lloyd moved three services of their Gemini partnership back to the Red Sea route, and Hapag-Lloyd has confirmed another Asia-Mediterranean service for October and December, with each voyage subject to a security assessment. Cosco and OOCL are also resuming Suez transits on five services. Canal transits exceeded 1,200 in both July and August, and August was the busiest month since December 2023. Any renewed attack on international shipping could quickly reverse this trend.

This raises the question of whether Egypt, which has one of the largest armed forces in the Middle East and Africa, could use its military to keep the strait open. Cairo has so far chosen restraint. It has set up a dedicated crisis cell, hosted Saudi Crown Prince Mohammed bin Salman in mid-September, and continues to coordinate with Saudi Arabia, Turkey and Pakistan in a regional quartet that met for the sixth time on the sidelines of the UN General Assembly. Egypt's foreign minister has also held talks with his Omani counterpart on the Red Sea. Egypt is not a member of the Mecca defence pact signed in August by Saudi Arabia, Turkey and Pakistan.

Egypt's reluctance to intervene is shaped by its own experience in Yemen. In September 1962, army officers overthrew the ruling imam in North Yemen and proclaimed a republic, triggering a civil war between republican forces and royalist tribes backed by Saudi Arabia. President Gamal Abdel Nasser sent troops to support the new republic, expecting a short campaign, but the Egyptian deployment grew to around 70,000 soldiers as the fighting dragged on in Yemen's rugged mountains. The war turned into a long and costly guerrilla conflict that drained Egypt's finances and tied down a large part of its army. More than 10,000 Egyptian soldiers were killed, and many historians consider that the Yemen commitment weakened Egypt ahead of its defeat by Israel in June 1967. After that defeat, Nasser reached an agreement with Saudi Arabia at the Khartoum summit in August 1967 and withdrew his forces by the end of the year. Often described as Egypt's Vietnam, this episode still weighs on Egyptian military thinking and helps explain why Cairo prefers diplomacy and coordination with regional partners over sending troops back to Yemen.

The Middle East crisis is also compounding a food supply problem. Egypt is the world's largest wheat importer and sourced more than 82% of its imports from Russia and Ukraine in the first half of 2026. Since the summer, attacks on ports and grain facilities on both sides of the Black Sea have delayed loadings, and in August a vessel due to load grain for Egypt was attacked as it approached the Russian port of Novorossiysk. The price of Russian wheat with 12.5% protein rose from $282.6 per tonne in early July to about $298.5 per tonne on August 26. Private importers, which bring in more than half of Egypt's wheat and hold smaller stocks, have been the most exposed, while a record local harvest has softened the impact.

On September 21, Supply Minister Sherif Farouk said Egypt holds strategic wheat reserves covering more than six months of consumption and is shifting part of its purchases to France, Bulgaria and Romania, with a 50,000-tonne French cargo already on its way. The government is also considering additional purchases to hedge against another price rise. Because state wheat is used to make subsidised bread for more than two-thirds of the population, higher import costs weigh directly on public finances.

Egypt is therefore exposed on two fronts at once: its main source of hard currency and its food import bill. The Suez Canal Authority expects revenue to reach around $8 billion in the 2026/2027 fiscal year, but that forecast depends on shipping lines continuing their return to the Red Sea. With the Houthis now holding the Bab el-Mandeb, talks between the United States and Iran at a standstill and the US midterm elections approaching in November, the outlook for Egyptian trade and public finances remains highly uncertain.