This has been playing out for a few years already, and is worth keeping an eye on. For Egypt, Sudan's political future is crucial to this issue and is one reason Cairo is so adamantly opposed to the partition of Sudan and to foreign intervention in Darfur. The thing is, this year had the biggest volume of water coming into the Nile in decades (presumably a consequence of climate change), and I'm not sure what the scientific impact of diverting more water upstream would be on Egypt. But no matter what, Egypt will fight tooth and nail to preserve the status quo:
The distribution of Nile River water has been regulated by the 1929 Blue Nile agreement between the United Kingdom and Egypt, and the 1959 agreement between Sudan and Egypt. The latter gave Cairo a de facto right to veto any project using Nile water in other riparian states. Although this treaty remained unchallenged over the years, this is no longer the case. Indeed, many African states have experienced robust G.D.P. growth rates in recent years -- with the notable exception of Eritrea, which suffers immensely due to its border war with Ethiopia and its devastating economic policy of self-reliance -- and this has increased their need to develop their infrastructure, produce more energy, and provide more water to their populations. Understandably, the majority of the Nile River countries now want to re-negotiate the decades-old treaties.Considering Egypt's considerable fall in regional stature over the past few years, it won't be in a great position to re-negotiate the treaty when the time comes. And while in the past some officials have threatened military action over this issue, I can't imagine they would really be able to carry them out considering that the other states have a pretty strong case that they would be righting an unfair treaty.