Standard & Poor's warned that the escalation of Israel's war in Gaza may leave Egypt facing a long-term shortage in gas supplies.
In a report seen by Asharq Al-Awsat on Monday, the agency said that "the war will largely be contained to Israel and Gaza and last no more than three to six months."
However, further escalation, also spreading beyond Israel's borders, could involve damage to pipelines or obstruction of shipping in the Strait of Hormuz.
"We believe if that were to happen, Israel's gas exports could stop completely. And we don't think many producers in the Gulf Cooperation Council (GCC) could fill that gap since most of their gas production is already under contract," read the report.
"We assume the war will remain centered in Gaza and have a low impact on Israel's neighbors, but if it spreads to important delivery channels, Egypt – which is already rationing gas – might struggle in the medium term, in our view."
Standard & Poor's indicated that this situation could eventually "hurt credit quality in the region if it escalates further."
In its latest report on Egypt on Oct. 20, the agency lowered its long-term foreign and local currency sovereign credit ratings on Egypt to "B-" from "B." The outlook is stable. We also affirmed our short-term sovereign credit ratings at "B."
It has also announced that it was lowering Israel's credit outlook from stable to negative. The credit rating itself remains unchanged at AA-.
Since the start of the war, Israel has shut down the Tamar gas platform, which produces about 10 billion cubic meters of gas, about 85 percent of which is used for the Israeli domestic market, and about 15 percent of the remaining is exported to Jordan to generate electricity, and Egypt to liquefy and export to Europe.
Since 2020, Israel has provided almost all of Jordan's natural gas supply and 5 percent to 10 percent of Egypt's, according to S&P Commodity Insights data.
"Yet we believe Egypt's gas supply is more exposed than Jordan's because Jordan has an unused LNG plant and an offtake agreement with Israel," said the report.
Gas production in Israel is down almost 50 percent due to the repercussions of the war.
Israel produced about 22 billion cubic meters (bcm) of natural gas in 2022, about one percent of the global total.
It exported a combined nine bcm to Egypt and Jordan, according to S&P Global Commodity Insights data. Most of Israel's gas production comes from offshore fields in the Mediterranean Sea.
Since 2019, Egypt has achieved self-sufficiency in gas production to meet domestic demand, and about 60-65 percent of it is consumed as fuel for power generation, and 20-25 percent goes for industrial use.
Egypt imported about six billion cubic meters of gas in 2022 from Israel, converting some of it into liquefied natural gas and then exporting it to Europe.
It contributes less than five percent of Europe's natural gas needs.
Europe imports most of the LNG it needs from the US and Qatar. The EU has also exceeded its 95 percent target inventory level and, barring an unusually cold winter, has sufficient gas supply without LNG from Egypt.
However, even before the recent escalation in Israel, increased demand for energy led to blackouts in Egypt. It came amid lower gas production in Egypt and a greater need for gas to fuel cooling units during this year's unseasonably hot summer.