Several industries hit by conflict in the Sinai Peninsula

Several industries hit by conflict in the Sinai Peninsula

The expanding conflict in the Egyptian Sinai will likely lead to an increasingly fragile economic environment in tourism, shipping, and energy sectors.

The battle that took place on July 1st in the North-eastern part of the Sinai Peninsula, between Rafah and Sheikh Zuweid, marked a watershed moment in the ongoing insurgency in the area.

Militants of Wiliyat Sinai, a Sunni extremist organization affiliated with Islamic State (IS), previously carried out mainly low-to medium-intensity attacks, the bulk of which targeted security forces and administrative personnel and assets.

In early July, Wilayat Sinai fighters shifted to a strategy similar to the one used by IS in Syria and Iraq, a strategy focused on cutting off rival groups and holding territory. This led to a major military counter-offensive in the Rafah-Sheikh Zuweid area, in which the Egyptian military claimed to have killed approximately 250 militants since the beginning of July.

While much of the fighting is confined to the North-eastern part of the peninsula, this ongoing conflict is likely to have an impact on the wider Egyptian operational environment and may lead to higher threat levels affecting three key sectors of the country’s economy: the tourist industry, the transit of vessels through the Suez Canal, and the transit of energy resources through the Sinai region.

A multi-level threat to the tourism industry

In 2014, the Egyptian tourism industry accounted for approximately 11% of the Gross Domestic Product (GDP) and was among the main sources of employment for Egyptians.

However, as is clear from recent attacks in Tunisia, IS-linked militants have a deliberate strategy of targeting tourist areas, with a strong focus on Westerners for mass-casualty attacks and to debilitate the country’s economy.

Egypt has a plethora of tourist locations that could be potential targets to Sinai-based insurgents as exemplified by the attack at the Luxor and Karnak Temple on June 10th.

As militants try to weaken the government positions in the Sinai there is a heightened risk of attacks against tourist locations within the peninsula and throughout the country. These attack scenarios may replicate the February 2014 shooting that left four dead, including three foreigners, at the Taba border crossing between Israel and Egypt or more complex operations targeting strategic resorts such as the 2005 bombing in Sharm-el-Sheikh that left 88 dead.

Both small-scale shootings and major complex attacks have the potential of leading to a drastic fall of tourist interest and activity in Egypt.

The Suez Canal: a symbolic target

In September 2013, at least two militants allegedly linked to an Islamist outfit identified as the al-Furqan Brigade, then associated to al-Qaeda, reportedly fired two rocket-propelled grenades at a Panamanian-flagged container ship that was transiting through the strait.

Following the attack, Egyptian authorities managed to arrest a large number of militants who were plotting further operations targeting vessels in transit through the Suez Canal.

While no attack has so far been able to cause significant damages to ships in the area, the canal offers a symbolic target for insurgents operating in the Sinai and there is the potential that in the medium term Sunni extremist militants may try again to carry out attacks against vessels or infrastructure in the Suez Canal area.

Even if attacks are unlikely to succeed, the temporary slowdown of the flow of vessels in the Canal may in the future have heavy repercussions on global private business operations and international trade.

The risk of additional attacks on gas pipeline

Between early 2011 and December 2014, militants have attacked the Arab Gas Pipeline at least 27 times. The pipeline transits through al-Arish, Rafah and Taba and transports natural gas to Israel and Jordan.

The latest recorded attack to date took place South-east of al-Arish on May 31st. The majority of these attacks consist of improvised explosive devices (IEDs) being placed under the pipeline, with their detonation leading to the temporary suspension of activities.

Given that the Arab Gas Pipeline has a long part of its infrastructure located within territory home to IS-linked militants’ strongholds, it is likely that in the short term insurgents will try to replicate the tactic already used in Syria and Iraq that consists of trying to seize strategic part of the pipeline network in an attempt to use it for the insurgent group’s own benefits.

A country-wide, evolving threat

While the current conflict situation in the North-eastern portion of the Sinai is specific to the fight pitting Egyptian military units against pro-IS fighters, there is a high risk of additional terrorist attacks throughout the country.

The blast that targeted the Italian consulate in Cairo on July 11th along with the explosion that killed Egypt’s public prosecutor, Hisham Barakat, in late June indicate that militants may try to expand the insurgency by selecting higher profile targets, including foreign diplomatic missions, commercial assets and tourist locations; a strategy that could negatively impact the willingness of diplomatic missions and private actors to operate in the country.

About Author

Riccardo Dugulin

Riccardo Dugulin is an analyst at Drum Cussac, a global business risk consultancy. He specializes in supporting international organizations and large corporations operating in emerging markets by providing them with critical risk management intelligence. His regions of expertise are the Near East, the Gulf, North Africa and Continental Europe. He previously worked as project manager for a French medical assistance company. He gained field experience in the Middle East having worked for leading think tanks in Dubai and Beirut. Riccardo holds a Master in International Affairs from the Sciences Po – Paris and a Bachelor in Middle Eastern Studies from the same university. Follow him on Twitter @RiccardoDugulin.