It is, therefore, important for U.S. foreign policy to recognize challenges to Egyptian stability. Most prominently, Egypt has been put in the global spotlight in the past few months because of the ongoing war in Gaza. As Israel prosecutes its campaign against Hamas, developments along the Sinai border near Rafah could be viewed as infringements on Egyptian sovereignty with political consequences in Cairo.

Meanwhile, another conflict is brewing in the south. As Egypt faces increased water scarcity due to the new Grand Ethiopian Renaissance Dam, tensions with Ethiopia are growing after negotiations reached a “dead end” in December. Complicating this conflict is Ethiopia’s recent recognition of Somaliland, an autonomous region of Somalia unrecognized by the Somalian government. Egyptian president Abdel Fattah el-Sisi hosted a press conference with the President of Somalia where he explicitly threatened to support Somalia’s sovereignty with military assistance. This conflict spilled over into the U.S. Congress after Representative Ilhan Omar (D-MN) appeared to pledge support to the Somalian government’s claim.

In addition to these potential international conflicts in Gaza and with Ethiopia, a more insidious threat to Egyptian stability is approaching on the economic front. The Houthi attacks on international maritime trade passing through the Bab-el-Mandeb Strait have had a massive impact on global supply chains. There has been a 30 percent decline in global container ship volume passing through the Suez, according to the IMF, and major shipping companies like Maersk have suspended their routes through the canal indefinitely. Though the Houthi impact on global trade is pronounced, the pain is all the more acute for Egypt’s canal revenues.

Egypt’s external debt stands at around $164.5 billion. The country’s trade deficit means Egypt is starved of dollars, such that the government can no longer maintain a peg of the Egyptian Pound (EGP) of 31 EGP per $1 (the official government exchange rate). The parallel market now values $1 at roughly 60 EGP,  a level Egyptians once found unimaginable. The diversion of traffic from the Suez Canal to other maritime routes compromises one of Egypt’s largest sources of dollarized income. The disruption of the Suez Canal’s revenue stream is significant and compromises approximately forty percent of the canal’s revenues.

However, Egypt’s current economic crisis—though significant—belies a broader financial crisis looming for the country. Massive amounts of public borrowing over the last decade for state-funded projects have been primarily financed by the central bank printing currency, with the majority of loans underwritten in Egypt used to fund mega-projects like the New Administrative Capital and an ambitious new monorail. Though lauded as ventures that would boost foreign direct investment in the country, these infrastructure initiatives failed to draw significant appetite from the international community. Instead of being scrapped, the government simply decided to fund these projects on its own.

Now, the bill is coming due, and Egypt desperately needs to restructure its obligations in order to avoid default. In their regional outlook update on the Middle East, the IMF’s director for the Middle East argued that “restrictive macro-policies remain essential to bring[ing] down high-debt and inflation in certain countries.” This update, delivered on January 31, reportedly precedes a new IMF deal under negotiation to extend more loans to Egypt. The rumored deal would involve an urgent devaluation of the Egyptian pound. This, along with the government’s continued austerity measures, may plunge the already debilitated Egyptian consumer into greater poverty.

Any potential economic destabilization can serve to threaten domestic stability, providing an opening for radical actors to return to prominence. The Sisi government extensively suppressed the infrastructure of the Muslim Brotherhood in the wake of the military’s toppling of the previous president, Mohamed Morsi, in 2013. Yet, it would be foolish to underestimate the potential return of extremist parties in the context of sharp economic decline.

Gaza, Ethiopia, and imminent devaluation: all these factors make for a perfect storm for Egypt in 2024, representing both an opportunity and a potential crisis for U.S. foreign policy. Drawing closer to Egypt now, with economic and military assistance, could result in a more effective U.S. influence on Egyptian policies and potentially offer a counterbalance to the growing Russian presence elsewhere in North Africa and the Sahel. On the other hand, a destabilized Egypt could present a major problem for the Western world. By far the most populous country in the Middle East, a crisis there could mean a wave of economic refugees that would dwarf anything seen thus far at the moment that anti-immigration sentiment in Europe is undermining political parties with Atlanticist orientations. U.S. interests in European and Middle Eastern stability have become intertwined. Washington would do well to act quickly and signal support for Egypt in order to forestall disorder, which would only benefit America’s adversaries, whether Iran, Russia, China, or Islamist extremists.