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Will the Gulf continue to support Egypt out of its economic crisis?

March 15, 2022 at 2:09 pm

A man counts Egyptian pounds at currency exchange shop in downtown Cairo. [KHALED DESOUKI/AFP/Getty Images]

One week ago, Abdel Fattah Al-Sisi went to Saudi Arabia where he met King Salman Bin Abdel Aziz and his son, de facto ruler Crown Prince Mohammed Bin Salman. The unscheduled visit came at a critical time, with Egypt in the throes of an economic crisis, inflationary prices and a severe shortage of currency reserves.

Russia’s invasion of Ukraine and the Western response of imposing sanctions on Moscow brought the price of oil near the all-time record of $150 per barrel. As a net oil importer, Egypt’s oil and petroleum derivatives imports in 2021 reached $5.3 billion for 8.6 million tons, while the price of Brent crude ranged between $30 and $85 per barrel.

The blow to Egypt got worse with two other hits. First, Egypt is the world’s largest importer of grain, with 88 per cent of its wheat imports coming from the two warring countries, Russia and Ukraine. The other hit was that the same two countries occupy first and second place in the list of countries sending the most tourists to Egypt. In effect, therefore, such close economic relations make Egypt among those most affected, economically-speaking, by the war.

Over the past few years, cash-strapped Egypt has depended on treasury bills to finance its budget, maintaining a nearly constant exchange rate of around 15.7 Egyptian pounds to the dollar. Once war was declared, though, investors were directed to sell bills worth about $1.2 billion. Simultaneously, J P Morgan expected Egypt to lower the pound rate to 17 per dollar.

Over in the Gulf, meanwhile, there are happy days due to rising gas and oil prices and because the war has put a hold on the imminent nuclear deal between the West and Iran. The terms would give Iran, the main adversary of the Gulf’s largest state, Saudi Arabia, an economic breakthrough and improve its international image as a peaceful country. Now, the Gulf States will enjoy financial prosperity and keep their adversary in check under the harsh yoke of sanctions.

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Historically, the Gulf has been a leading donor helping Egypt to recover from its financial woes. However, there has always been a price to pay for this support. Egypt has had to hang on to the Gulf’s coat tails in terms of regional policies in return for financial support. But while Saudi Arabia used to be a conservative actor in the region, with minimal fractious relations with strong regional states and thus helped to maintain a degree of relative political stability, Riyadh is now a violent actor. The Saudis are at war in Yemen in an effort to prevent the Iran-sponsored Houthis from seizing Riyadh’s southern neighbour. A similarly harsh approach has been seen in Lebanon, from which Saudi Arabia withdrew financial support because of the domination of the state by Iran ally Hezbollah. This violent politics is not exclusively the situation for Saudi Arabia; the UAE is also much more aggressive in terms of regional and international policies. Support has been given to militarised groups in Libya and Yemen to spread regional influence.

Egypt has experienced a long-term vulnerable economy and years of isolation ever since it signed a peace treaty with Israel in 1979, which stripped Cairo of its regional leadership role. Although it has a vast military, Egypt has minimal experience sponsoring or engaging in asymmetrical warfare. The deep-rooted state prefers a more conservative foreign policy than Saudi Arabia and the UAE.

This new political landscape could be seen in the recent tension between Cairo and Abu Dhabi. Cairo felt the effects of the UAE’s disregard for Egypt’s national interests after the Gulf State supported Ethiopia’s Prime Minister Abiy Ahmed in the dispute over the operation of the Grand Ethiopian Renaissance Dam. The tension was deepened by the UAE’s rush to normalise relations with Israel, which includes building a pipeline between the Gulf and Israel to bypass Egypt’s Suez Canal.

The questions on everyone’s lips now are simple: will the Gulf States keep giving Egypt their unconditional financial support? Or is it likely that no more support will be given to a now marginally-valuable ally?

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The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.