The 1979 Peace Treaty between Egypt and Israel has long been the geopolitical cornerstone of the Middle East, establishing a stable southern flank for Israel and a cooperative, if “cold,” relationship with its largest Arab neighbor.
Today, this cornerstone is under unprecedented threat. The danger doesn’t primarily come from a hostile external power, but from within the Egyptian state itself. The internal, non-cyclical fragility of Egypt is rapidly dissolving the “cold peace” into a state of volatile strategic dissonance.
The internal, non-cyclical fragility of Egypt is rapidly dissolving the “cold peace” into a state of volatile strategic dissonance.
The regional crises of the past two years — the Gaza War and the Houthi maritime attacks — acted as catastrophic accelerants, instantly translating Egypt’s deep structural decay into geopolitical instability along the shared border. The stability of the Middle East’s longest peace now depends on the rapidly deteriorating economic and social health of the Egyptian state.
The core of Egypt’s fragility is the fiscal collapse of President Abdel Fattah el-Sisi’s “Second Republic,” a system defined by military-led state capitalism.
The military establishment and its senior officer corps regard their dominance over key sectors of the economy as an inherent entitlement. This dominance severely crowds out the legitimate private sector, undermining competitiveness and preventing the creation of an economy that can generate sufficient employment.
This crony system, fueled by expensive priorities and massive borrowing, has created a state of unsustainable sovereign debt. For the upcoming fiscal year, Egypt is projected to spend an astonishing 65 percent of its annual budget merely on servicing existing debt payments. This burden starves productive investment and social welfare programs, forcing painful cuts.
Massive, repeated bailouts from the IMF and Gulf states have consistently prevented “dramatic failure.” However, they also create a moral hazard, allowing the Sisi regime to avoid the necessary structural reform — namely, loosening the military’s economic grip — thereby sustaining the underlying instability. The institutional contradiction is stark: the entity providing short-term security (the Egyptian military) is the same entity impeding the long-term economic stability required for peace to endure.
The military establishment and its senior officer corps regard their dominance over key sectors of the economy as an inherent entitlement.
Beneath the economic crisis lies a massive, alienated youth surge. Egypt’s young population (Gen Z) harbors profound political disillusionment and distrust. With over 60% of workers in the informal sector, and a university degree no longer a reliable pathway to employment, economic despair is widespread. The resulting legitimacy crisis compels the regime to adopt an aggressive foreign policy to ensure its own survival. Adopting a hostile, nationalist stance toward Israel — especially over Gaza — functions successfully as a surrogate for anti-regime politics, diverting popular resentment away from domestic failure.
This fragile domestic foundation collided with the regional shock of the Houthi attacks. The resulting trade diversion caused Suez Canal revenues to plummet by 61.2% in the first quarter of the 2024–2025 fiscal year. This catastrophic loss of foreign currency instantly translated the structural fragility into geopolitical volatility.
The consequence is a rapid strategic transformation of the peace framework. Egypt is shifting from an accommodated counter-terrorism partner to a state establishing a conventional deterrence posture against Israel. This is evident in the military buildup in the Sinai Peninsula, which some Israeli officials contend exceeds the limits of the 1979 Military Annex. The dispute over control of the Gaza-Egypt border, the Philadelphi Corridor, is the most volatile point of tension, as Israel’s security interest in stopping smuggling conflicts directly with Egypt’s existential fear of mass displacement into Sinai. Furthermore, Egypt suspended high-level security coordination channels following the Gaza conflict, removing a crucial lubricant from the “cold peace” and elevating the risk of tactical misunderstandings.
If the cornerstone of the region is allowed to crumble, the stability of the entire region will collapse with it.
The durability of the 1979 Treaty requires the United States and Israel to address Egyptian fragility not as an economic problem, but as a core national security imperative. Western partners must impose strict conditionality on aid to enforce the loosening of the military’s grip on the economy. Beyond this, long-term security requires substantial funding for non-military economic development and social inclusion in the Sinai Peninsula to address root grievances. Finally, immediate US-led diplomatic pressure is necessary to reinstate suspended security coordination and formalize new, jointly monitored security arrangements for the Philadelphi Corridor.
The internal decay of the Egyptian state is transforming the Mideast’s longest peace into a conventional hostility. If the cornerstone of the region is allowed to crumble, the stability of the entire region will collapse with it.
Published originally on November 10, 2025.
