For a state in which nearly 50% of the population is making less than $2 a day, with an official unemployment rate approaching 15% and a crippling 2012-13 budget deficit of $35 billion against $84 billion in expenditures, the loss of the canal would be devastating. Not only would it undermine confidence in the military’s ability to restore stability, it would embolden militants who continue to seek a restoration of Islamic rule in Egypt.

While inconvenient, in the worst-case scenario, Washington could make alternative arrangements to deploy military vessels to the Persian Gulf to counter Iran. And now that the fence along the frontier is complete, Israel too can mitigate much of the terrorist threat from Sinai. For Egypt, however, the targeting of the canal highlights the ongoing vulnerability of the state.

The Egyptian military claims it has made significant progress toward restoring security in Sinai. But Egypt’s security problems now extend well beyond the peninsula, so much so that the situation is starting to resemble the low-level Islamist insurgency that persisted throughout much of the 1990s. Bolstered by the technical capabilities of foreign fighters, this round promises to be even more difficult for Cairo to contain. Until security in both Sinai and the Nile Valley is reestablished, Egypt’s economic recovery and political stability — along with Suez Canal shipping — will remain at risk.