from From the Potomac to the Euphrates and Middle East Program

Egypt and the Gulf: When a Free Lunch Is Not Free

May 13, 2014

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Last Friday, the online version of the Egyptian daily, Al Ahram, reported that Egypt is slowing down its payments for commodities, especially food.   Apparently, because the country’s foreign currency reserves are currently about $17 billion—which means the Egyptians are coming close to the minimum amounts of reserves needed to cover imports for 3-4 months—the Central Bank has become “particularly cautious” about allocating these funds.  Upon hearing the news, one former IMF and Treasury Department official wrote to me: “So it begins…central bank has a delicate balancing act…withhold too long and it gets blamed, but it needs to slow the drain…often see this in advance of em [emerging market] crisis.” There has been some happy talk recently, most notably from IMF chief Christine LaGarde, about the state of Egypt’s finances, but it seems clear that the Egyptians are going to need additional assistance.  Their likely patrons will be the Saudis, Emiratis, and Kuwaitis who poured $12 billion in various forms into Egypt right after the July 3, 2013 coup and, in an implicit recognition that the Egyptian economy is in disastrous condition, the three Gulf states have committed an additional $8 billion.  The Gulfies may come to regret their investment in Egypt, but for now they remain unwavering in their support for Cairo.  It is true as some Emiratis have grumbled in private and stated publicly that they will not keep pouring money down a black hole, but for now at least  the assistance will continue to flow.  The funding from the Gulf is not just to keep the economy afloat but also to ensure that Egypt follows a particular political trajectory that does not pose a threat to the Saudis, Emiratis, and Kuwaitis or their common strategic interests.

The Egyptians find themselves in both a potentially awkward and possibly advantageous position as a result of the assistance from the Gulf.   Since Mubarak fell, Egypt’s leaders and potential leaders—whether servants of the old regime, Muslim Brothers, military officers, neo-Nasserists, business tycoons, or whoever—have desperately sought to tie themselves to the revolution.  It is rather stunning how many non-revolutionary figures have declared their desire “to protect the revolution,” but that’s politics.  No one in Egypt at least seems willing to call them out on this or point to the fact that as these figures wax eloquently (or not) about democracy and national empowerment, Egypt has become dependent on financing from countries that do not have a very good track record supporting more open political systems.  This seems awkward, no?  Or is it just me?  Less than a year after the July 3 coup and the major Saudi-Emirati-Kuwaiti commitment, Egypt’s interim government and presumptive president, Field Marshal (ret.) Abdel Fattah al Sisi, have not paid a political price for Cairo’s relationship with the major Gulf states. Even presidential candidate Hamdeen Sabahy, an avowed follower of Gamal Abdel Nasser—who basically went to war against Saudi Arabia in Yemen in the 1960s— is on record praising Riyadh and Abu Dhabi for their support.  This is likely the result of a broad recognition of Egypt’s difficult economic circumstances and the importance of the assistance in keeping the Egyptian economy afloat.  Egyptians seem genuinely grateful for the assistance.  It may very well be that Saudi Arabia, the United Arab Emirates, and Kuwait are next on the list of external powers that have financed Egypt’s pursuit of modernization and development.  It did not end well for the Brits, Soviets, and Americans.  Perhaps it will be different in the case of the Gulf states because they are, in the words of Sabahy, “brotherly,” but I suspect that it will not. At the moment, Egypt, Saudi Arabia, the UAE, and Kuwait may have a confluence of interests, but those interests may change or views about how best to achieve these interests may diverge over time.

Egyptians also bristle at the suggestion of dependency on the Gulf.  They are quick to point out that the Saudis, Emiratis, and Kuwaitis need Egypt for their security. In an interview with Lebanon’s As-Safir newspaper, Sabahy declared: “We appreciate this [financial] assistance, but I don’t call them gifts. What pushed the Gulf to Egypt is an expression of these countries’ interests, because Egypt … by confronting the Muslim Brotherhood has reduced the danger not only to the Egyptian state but also to Arab regimes, including those in the Gulf.” These are the same sentiments that one hears from government representatives and others within the ambit of Egypt’s elite, but apparently it is not just what Egypt is doing at home that is important.   Word in Cairo is that there have been some preliminary discussions among Egyptian and Gulf leaders about how to bring Egypt into Gulf security arrangements. There is precedent for this type of thing, sort of.  In 2011 after Zine al Abdine Ben Ali and Hosni Mubarak were pushed from power, the Gulf states invited Jordan and Morocco to become part of the Gulf Cooperation Council sometime in the future and previously, the Gulfies sought to purchase Egyptian and Syrian military support and cooperation through the Damascus Declaration (March 1991).  The Gulf states backed away from the agreement, preferring instead to entrust their security exclusively to the United States.  It is unclear whether the Egyptians and the Gulf states are actually interested in some type of Damascus Declaration redux, but either way Egypt’s dependence on the Gulf carries considerable risk for Cairo’s foreign and security policy.

There may be no explicit conditions on the financing from Saudi Arabia, the Emirates, and Kuwait, but there is surely an expectation that Egypt’s positions on important regional issues align closely with those of the Gulf.  On the issues of primary importance to the Gulf states, there nevertheless seems to be an implicit understanding that inflows of assistance are dependent on a crackdown on the Brotherhood and help countering the Iranian threat.  This is the natural inclination of those currently in power in Cairo, which diminishes the potential for political pressures and strains from even unarticulated conditionality, but it is clear that the Gulf states expect something in return for their generosity.  The existence of informal conditions poses an additional risk to Egypt.  With the exception of a statement Hosni Mubarak made in 2006 about Arab Shi’a being more loyal to Iran than to their own countries during an interview on al Arabiya, Egypt has never approached regional problems and conflicts in the explicitly sectarian way that informs Saudi foreign and national security policy, in particular.  Financing from and tight strategic coordination with the Gulf may drag the Egyptians into Saudi Arabia’s seemingly pathological and one-dimensional Sunni-versus-Shi’a view of the world.

This cannot be good for Egypt. The Egyptians surely confront daunting and even scary economic problems, which have driven them into the arms of Gulf states for assistance.   The United States cannot help—it has few resources and extending additional aid to Egypt is political freight that Washington cannot bear. The Egyptians nevertheless need to be cautious.  Signing up for the Saudi/Emirati/Kuwaiti team only compromises Cairo’s desire to pursue an independent foreign policy that one day will restore what many in Egypt believe to be its natural place leading the region.