The Madbouly government agreed in December to purchase hedging contracts to guard against volatility in the oil markets, Bloomberg Asharq reported yesterday, citing two government sources. “The oil and finance ministries are waiting for the appropriate timing to contract and implement hedging contracts,” one of the sources told the news outlet.

The move comes after oil prices saw extreme volatility in 2022 on the back of a supply squeeze thanks to the war in Ukraine, dwindling demand from the world’s largest crude importer China, and fears of global recession. Brent climbed to its highest level since 2008 in the wake of the war’s outbreak but has since fallen back to around USD 86 per barrel. (Read more on what swings in the markets meant for Egypt in 2022 in our year in review on the energy sector.)

Why this matters: As a net oil importer, higher crude prices are putting pressure on public finances.

• The state is spending more on imports than it anticipated: The price of Brent spent most of the first half of FY 2022-2023 above the USD 80 per barrel benchmark used for the state budget.
• The subsidy bill is rising: The government spent EGP 31 bn on fuel subsidies during 1Q FY 2022-2023, more than 4x its spend during the same period in FY 2021-2022, a source at the Egyptian General Petroleum Corporation (EGPC) told Bloomberg Asharq in November. The fuel subsidy bill for FY 2021-2022 was up to EGP 59.6 bn, more than triple the EGP 18.4 bn estimated in the budget.

This isn’t a one-off: Hedging against oil price risks has become a common practice by the government in recent years. It took out hedging contracts with international banks in FY 2019-2020.