After years of volatility and struggles, Egypt’s oil and gas sector has entered 2026 with a rare piece of good economic news. It has made a decisive dent in the mountain of debts owed to international energy companies, as reported by Egypt’s Prime Minister Madbouli. Cairo has been facing years of crippling foreign-currency shortages and mounting overdue payments, both of which have negatively affected investment and slowed domestic gas production. Egypt is starting to turn the page. Still, optimism should be tempered, as the broader narrative remains one of structural fragility and constrained growth. Cairo is also facing heightened geopolitical exposure. All this remains in place, even as Cairo attempts to stabilize its energy landscape and reassert its regional role.
At the heart of current positive developments is a strategic decision made by the Egyptian government to address its longstanding arrears to foreign oil and gas partners. In mid-June 2024, the Egyptian state owed IOCs around $6.1 billion. These arrears were caused by foreign-exchange shortages, which prevented the Egyptian Central Bank from honoring contractual obligations denominated in dollars. This situation not only puts a major dent in investor confidence but also directly contributed to a drop in gas output. Declining domestic natural gas production, combined with rising demand, has forced Egypt to import increasing amounts of LNG and Israeli pipeline gas, at high cost to fill the gap.
In the last days, Madbouly reported that approximately $5 billion of those outstanding arrears have now been paid down, leaving a total balance of around $1.1–$1.2 billion. Cairo has also reiterated its commitment to settle current monthly invoices on schedule. This is critical because it will prevent the reaccumulation of unpaid claims.
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This development is more critical, not to be seen as bookkeeping. If Egypt clears its arrears, it will send a strong signal to the market that Cairo is back in the game. Clearing arrears is also needed to counter the narrative of the previous period, as Egypt’s oil and gas sector has suffered not from geological or political factors, but from liquidity constraints. The latter put the country on a list of less reliable partners. The repayment of these arrears and its timing are not coincidental but have occurred against a backdrop of improved foreign exchange reserves. The latter is now reported to have climbed above $50 billion by late 2025, opening additional maneuvering room for Cairo.
At the same time, the total timing of these statements is also important. Cairo’s improved balance sheet is linked to a major $35 billion agreement with the United Arab Emirates in 2024. Even though there has been internal Egyptian criticism of the deal, which has granted the UAE (specifically Abu Dhabi) development rights along Egypt’s Mediterranean coast, the payments have helped unlock the dollars needed to start whittling down energy arrears. Not only was cash delivered, but it also boosted international investment confidence. However, it is important to understand that clearing arrears is not the same as curing the sector’s deeper ailments.
Egypt is still confronted with a situation in which its domestic gas production remains below its path-dependent potential. Latest figures show that Egypt’s gas output in October 2025 was around 3,635 million cubic meters. According to the Reuters report, this means it is up slightly from the preceding month but still down relative to October 2024. For Cairo, lower production still means that it depends on imports to counter local demand. It also forces it to hedge on global LNG pricing, shipping costs, and political relations with neighbors.
This legacy of underinvestment continues to put the country under pressure. The years of arrears have not only delayed payments to IOCs but also pushed these oil and gas giants to reduce their overall upstream capital expenditure. Deferred drilling and exploration have been among the reasons for lower production levels and longer timelines. Cairo has acknowledged all this and is now seeking fresh investment, offering new incentives and a pledge to intensify both onshore and offshore exploration.
Egypt’s regional energy ambitions, connecting East Med reserves to its infrastructure, highlight the importance of cooperation for mutual growth.
Cairo’s hub strategy, which is a strong rational choice, depends on a mix of domestic production and imports, including natural gas from Israel’s offshore Leviathan and Tamar fields. To reduce regional dependencies, Egypt is exploring diversification through renewable energy projects and alternative sources, which could enhance energy security and attract further investment.
For Egypt’s energy sector future, restoring payment credibility is crucial. Cairo recognizes that without reliable cash flows and predictable contracts, IOCs will hesitate to invest in new projects, delaying upstream sector revival and limiting its potential as a net exporter or trans-shipment hub. Sustained financial discipline will be essential for sector sustainability and attract long-term investment.
Cairo is currently playing a confidence play, first by clearing the arrears and by showing a fiscal adjustment. The country’s total economy is navigating a return to more orthodox policy settings. The latter has been needed due to the currency devaluation and IMF-supported reforms of 2023–24. Foreign investors will regain confidence if energy payments are serviced on time. If this is to be in place, Cairo could face reduced risk premiums, especially on its assets. It will also stabilize capital flows.
Still, risks remain, as the country’s foreign currency reserves are vulnerable to external shocks. Sharp swings in oil and gas prices, major Suez Canal constraints, and renewed geopolitical tensions remain. Egypt’s government will also need to continue its disciplined approach to reserve management, to ensure that completing the arrears reduction by June 2026 does not compromise other strategic priorities.
For Egypt’s energy reset, the clearing of $5 billion of arrears is a milestone, as it will restore baseline credibility. It is also expected to lay the groundwork for a more dynamic upstream sector. The $6 billion in arrears, however, also reminds everybody how deep the wounds were. The $6 in arrears was linked to a capital-intensive sector. It will leave a mark that will take years to heal fully.
Egypt is still facing challenges, as it will need to boost production sustainably, diversify supply sources, and deepen regional cooperation. All of them are needed if it still hopes to realize its overall ambition as an energy hub. The payments are only a first step in a longer strategic agenda. The country is not only still grappling with fiscal pressures and currency vulnerability, but also with the possible negative impact of the competitive regional landscape. It will need to reassess how to deal with Turkey, Israel, and Gulf energy actors, as they are all vying for prominence. The situation in Egypt’s oil and gas sector is improving, but it should realize that the hard work has only just begun.
By Cyril Widdershoven for Oilprice.com
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