The Obama Administration Is Setting up a Bloodbath in Egypt
The economics of confrontation in Egypt
(Cross-posted from Asia Times Online)
By Spengler
Egypt has enough foreign exchange on hand to cover six weeks’ of its imports (US$7.8 billion in liquid reserves, against a $5.5 billion monthly import bill). It would have run out of cash in June except for emergency loans from Saudi Arabia, which backs the Egyptian military but abhors the Muslim Brotherhood, whose candidate Mohammed Morsi won Egypt’s presidential election last month. Total reserves are listed at $15 billion, but this includes gold, International Monetary Fund (IMF) drawing rights and other non-liquid items.
The economic context is necessary to make sense of Egypt’s politics: it points to an important conclusion, that no path exists to stable rule by the Muslim Brotherhood. Saudi help has kept Egypt’s economy away from the brink of collapse, but only just. A paralyzing fuel shortage threatens to shut down essential functions, including bread supplies. If the Muslim Brotherhood were to push the military out of power, the Saudis almost certainly would pull the plug and leave Egypt in chaos.
Figure 1: Egypt’s Liquid Reserves Cover Six Weeks of Imports
A situation of dual power, to use the old Bolshevik term, prevails between the Brotherhood and the military. At this writing the Supreme Council of the Armed Forces (SCAF) had called an emergency meeting to respond to President Morsi’s attempt to revoke the military’s earlier decree dissolving Egypt’s Islamist-dominated parliament. Morsi announced that the dismissed parliament would meet within hours; some news reports from Cairo expect the military to refuse entry to members of parliament. The speed with which Morsi moved to confront the military surprised most analysts, who expected a few months of regroupment before the Islamists tested the military’s resolve.
There are two likely explanations for the Muslim Brotherhood’s gamble. One is that economic distress requires the Brotherhood to rally its base in a dramatic action; another is that the Brotherhood has been emboldened by the perception that it enjoys the tacit support of the White House against the military. A test of wills between the military and the Muslim Brotherhood, though, would lead to disaster.
A number of observers, for example Ilan Berman of the American Foreign Policy Council, and ex-CIA official Robert Grenier, predict that the military will crush Egypt’s Islamists like Algeria’s military regime two decades ago. By supporting the Muslim Brotherhood against the military, the Obama administration has raised the probability of bloodshed.
It is not clear, moreover, whether Saudi generosity can stabilize Egypt even under the best of circumstances. With its trade deficit running at $3 billion a month, and other sources of revenue much reduced, the country’s annual financing needs probably exceed $20 billion. Egypt is the world’s largest importer of wheat and depends on imports for half its caloric consumption.
Exhibit 2: Egypt Imports and Exports
Source: Bloomberg
President Morsi will visit Saudi Arabia later this week, presumably to persuade the Saudis to support his regime (and perhaps to threaten them if they do not). It will be a difficult dialogue, after the Muslim Brotherhood staged riots against Saudi diplomatic installations in Egypt late in April (see The horror and the pita, Asia Times Online, May 1, 2012), and a senior Saudi advisor told Egypt’s largest daily al-Ahram June 21 that the Muslim Brotherhood lacks the vision and experience to govern the country. The Saudi-sponsored Islamist party in Egypt, the Salifi Nour Party, has threatened to boycott Morsi’s cabinet on a number of religious grounds that probably express Saudi discontent.
The volume of aid for which Egypt present is negotiating is tiny relative to its financing requirements. On June 2, the Saudis put $1 billion into Egypt’s foreign exchange reserves and bought $500 million in Egyptian government bonds on June 4. And on June 8, the Saudis announced that Egypt could use a $750 million credit line to import fuel “based on the severe oil-products shortage faced by Egypt,” according to an e-mailed statement from the Saudi Embassy in Cairo. In addition, Egypt is expected to receive a US$1 billion loan to finance energy and food imports from the Saudi-based Islamic Development Bank (IDB).
Almost as soon as the checks cleared, the Egyptian military dissolved the Islamist-dominated parliament.
It appears that the authorities are trying to skimp on foreign exchange by restricting fuel imports. Diesel fuel and gasoline have been in chronic short supply for the past year, and the shortage appears to be getting worse. As the Egypt Independent reported July 3: “This summer season, already hectic with election fever, has only seen worse shortages and longer lines, with diesel, the gasoline 80 that is commonly used by taxis, and other fuels all but disappearing from many pumps. …In the Upper Egypt city of Minya, on the first day of the presidential runoff, gas stations had longer lines than polling stations.”
Egypt is also negotiating with the International Monetary Fund for a $3.2 billion loan, which presumably will open up other possible funding sources. The IMF loan is contingent upon the president’s negotiations with the SCAF on a new government.
Evidently the Saudis are keeping Egypt on a short leash. They do not want to let the country slide into financial distress as long as the military remains in charge, but neither do they want to provide resources to a Muslim Brotherhood regime that might subvert the monarchy.
The problem is that Egypt’s economy is a dog that cannot hunt now and cannot be made to hunt in the future. Without the Saudi lifeline, Egypt will stop some essential imports in a matter of weeks.
Why, then, is Mohamed Morsi picking a fight with the military?
As Jackson Diehl put it in the Washington Post July 8, “Last month the administration leaned heavily on the ruling military council to recognize Morsi’s victory in a runoff election. Lobbying by [US Secretary of State Hillary] Clinton and Defense Secretary Leon Panetta may have prevented the council from handing the presidency to its favored candidate, a former prime minister. But it infuriated the generals, Egyptian Christians and some US supporters of Israel, who fear the Islamists more than the old regime.”
With backing from the Obama administration, and enormous pressure from his political base, Morsi has rolled the dice with the military. The result is likely to blow up in his face as well as the Obama administration’s.
At best, international aid will allow the status quo to continue a while longer. But the status quo involves a barely-adequate supply of bread, a dreadfully inadequate supply of fuel, and no outlook for the future except poverty and insecurity. It seems most unlikely that a political or economic equilibrium can be established on such a wobbly base. The uneasy modus vivendi between the Muslim Brotherhood and the military most likely will fail, and probably sooner than later.
Spengler is channeled by David P Goldman. His book How Civilizations Die (and why Islam is Dying, Too) was published by Regnery Press in September 2011. A volume of his essays on culture, religion and economics, It’s Not the End of the World – It’s Just the End of You, also appeared this fall, from Van Praag Press.
(Copyright 2012 Asia Times Online (Holdings) Ltd. All rights reserved. Please contact us about sales, syndication and republishing.)
Mr. Goldman,
Everything Obama touches turns to shit.
What is your take – is it sheer incompetence, an attempt to subvert American interests, or a genuine belief that America up to now was evil, and this is how to change it?
I always thought that “Spengler” nailed it when he said (somewhere) that Bush and Obama were the “Idiot Twins of American Idealism.” Bush believed Baghdad could be made into Peoria, Illinois: Obammie believes Peoria is no better than Baghdad. Obama’s is the more pernicious error. By quite a bit.
Turns out, according to Debka (I know I know) that the the Obama invitation to Mursi is also a betrayal to Israel,
“In Jerusalem, the Obama administration is seen as suddenly backtracking on the conditions set the incoming Egyptian president in the last week of June, which essentially made US support of his regime conditional on his performance in key fields:”
The conditions can be seen here:
http://debka.com/article/22164/Israel-perturbed-by-Obama%E2%80%99s-outreach-to-Mursi—against-his-word
International relations and politics usually trumps economics. Your take on Egyptian MB vs Military is internal Egyptian theater meant to secure more handouts. They will learn to live with each other,(to the chagrin of certain interests), as their Turkish counterparts have.
No earth shattering events will occur in the ME, at least till after the US elections. Someone will cough up the cash to keep Egypt afloat till then.
Every known American adversary on the planet wishes to see Obama reelected. He’s their dream come true. They aren’t going to give Romney a foreign policy campaign issue instead of waiting a couple of months to secure Obama’s reelection. After November, and depending on the result, anything’s possible.
I wonder how the Chinese will feel about underwriting the American “loans” to the Egyptians… why else is President Morsi visiting President Obama at the latter’s invitation ?
A bloodbath in Egypt: I just wonder what this will do to their TFR. I predict a sharp fall in the next few years.
The military junta ruling the country emerged in 1952 out of the Muslim Brotherhood (MB). An Egyptian civil war will start when one organization feels it has decisively infiltrated the other. Perhaps the French and Brits will intervene to secure the canal zone (LOL).
Anyone running a pool on the likelihood of a US attack on Iran in October to help someone’s sagging poll numbers?
Thank you Dr. Goldman for updating this tragic tale, a story you’ve been warning about for many months. Despite the naivete of the current U.S. Administration, this seems like a situation where we are damned no matter what course of action we take. We let the djinn out of the bottle and the stopper no longer fits! But of course it is America’s fault, controlled as we are by those nefarious Jews!
Aside, will somebody please explain to me why the press portrays Hillary Clinton as some sort of foreign policy wunderkind? Reset with Russia? Arab Spring? Pivot to Asia? Withdraw from Iraq? Relations with Pakistan? Airstrikes in Yemen? Please let me know where these successes are, for I must surely be missing them!
You’re welcome, but it’s just Mr. Goldman.
“… will somebody please explain to me why the press portrays Hillary Clinton as some sort of foreign policy wunderkind”?
But she danced a mean Lambada in Columbia (http://www.youtube.com/watch?v=F45s88eW2rA).
Good list, pls add Basher al-Assad, the reformer.
Dear Mr. Goldman,
would you mind a technical question?
Several times, in your writings, you have expressed the Egyptian food import problem in quite careful terms- Egypt “depends on imports for half its caloric consumption”. How does that differ from overall food imports in a country which admittedly cannot feed itself anyway? Surely it would be simpler to say that Egypt imports half its food. But you have been careful not to use such broad language- why, and what’s the significance?
Thank you
Martin Owens
It’s a formulation used by FAO and World Bank, and it emphasizes that Egypt is dependent on imports for the most basic components of nutrition, not only (for example) meat or milk.
Thank you Mr Goldman for participating. I believe that translates into respect for your audience. Care to weigh in on LIBOR?
Good, Let them eat Islam…
Societies only change when they hit rock bottom, mass starvation and civil war are an important step in that direction…
Except islam has a tendency of blaming everyone but themselves. After they’ve killed or driven out their Christian population they will blame the Jews and attack Israel.
Let’s see, Germany is importing coal from the US for its coal fired electric power plants, Japans orders for machine tool fell not 3.8% but 14.+ percent, China is heading for a hard landing, and extremely large sunspots and particle ejection have started on the sun. Every time some government bank does Quantitative Easing or some form of it, its effect is shorter and less effective.
Things are balancing on a razor’s edge and even the Saudi’s may not be able to bail out Egypt. If the Suez Canal closes down countries may look the other way this time if they get invaded.
(I prefer) Dr. Goldman, what is the end result of an Egypt in a civil war and no way of using Europe as a safety net or safe harbor. This is not Tunisa nor Algeria nor Libya in 2010. This will have a spillover effect economically on the whole of Europe but specifically those countries that can least afford it, Greece, Italy Spain and Portugal. No?
By the way, with as much as I’ve learned from your writings your far too modest.
Mr. Goldman,
The WSJ editorialists wax enthusiastic about that other North African Springtime success story, Libya. They note approvingly that people armed with AK-47s were “defending the polling stations”. I’m sure Obama is crossing his fingers and hoping it won’t go south before November. That way he can claim credit for something besides having introduced “kinetic intervention” to the list of perverse euphemisms used by potentates to prettify their actions.
What say you?
Mr. Walsh,
Libya has twice Egypt’s GDP per capita (about $6,000 vs. $3,000). It has no shortages of fuel or food. If there is a pie to divide, it is at least possible for sectarian and political factions to agree to divide it, and less incentive for extreme actions. Libya, moreover, has only 6.4 million people, less than half the population of Cairo. With massive NATO intervention and a reasonable amount of money to spread around, it is not difficult to stabilize Libya (or, for that matter, Tunisia, with $4,300 GDP per capita and 10.4 million people. It is also easy to keep Saudi Arabia stable because the regime has enough money to buy off prospective opponents, at least for the time being. To compare Libya to Egypt is completely inappropriate — it is the sort of thing that “political scientists” who think in terms of “political models” might do. I avoid contact with such people in case whatever ails them might be contagious. Egypt has some 82 million people of whom perhaps 40 million live on $2 a day. I ought to blog on this separately.
A smart move for Egypt would be to take over Libya, no?
There was some speculation about Egypt taking over eastern Libya during the civil war in Libya. That might have been a wise act by the military but it is probably too late now. Someone has said that Libya is two oil wells and a beach. The eastern-most of the oil fields also has the smallest population, if I remember correctly. Egypt is on a collision course with reality unless Obama is re-elected.
Mr. Goldman, I have looked at the BIS detailed report for June. As of 12/31/2011, banks from the 43 reporting countries owed Libyan banks about $66B and had assets from Libyan banks less than $1B. Meaning Qaddafi had a stash of $65B, not counting gold, loot, and camels. I recall the transitional government got the international community to recognize their central banker while their forces were still skirmishing on the road to Misrata (March 19, 2011). Two days after the Security Council froze Libya”s Central Bank accounts.
The whole thing looks like a hostile takeover of a very fat soverign investment fund. Since about 50% of Libyans are under 18, and half the adults are women, that leaves about $40,000 US dollars per man. Even better, they aren’t going to share with the old regime”s supporters. They can continue to buy off support from the people with the interest, pocket new oil income, and now Al Qaeda has all the funding they will ever need.
This better be a long con our government is playing, and I don’t think our crack National Security Council is capable of tricking a wily bunch of long-term planners out of a paper bag.
Am I wrong, or did these Al Qaeda trained jihadis just get us to hand then enough funding to buy Pakistan, North Korea and Belarus?
the only thing to do now is loan Egypt gas money to annex Libya.
1 http://www.bis.org/publ/qtrpdf/r_qa1206_anx6a.pdf
2 http://www.bloomberg.com/news/2011-03-21/libyan-rebel-council-sets-up-oil-company-to-replace-qaddafi-s.html
An outbreak of civil war in Egypt obviously wouldn’t be too good for Egyptians, but what untoward effects would it have outside its borders? I suppose there’s the possibility that it will follow the path of many dying regimes and launch external adventures. But Israel would swiftly crush any such nonsense. Given that, why should we care what happens? The Egyptian people have made their bed; now let them lie on it.
“Evidently the Saudis are keeping Egypt on a short leash. They do not want to let the country slide into financial distress as long as the military remains in charge, but neither do they want to provide resources to a Muslim Brotherhood regime that might subvert the monarchy.”
Reminds me of Stalin’s position with regards to supporting Republican Spain during the Spanish Civil War. Provide them enough to keep them from suffering defeat but not enough so they can defeat Franco’s Nationalists. Aka, drag on the war in the hopes the conflict would entice the Western Powers to align with the Soviet Union against Nazi Germany. A nice side benefit is the build up the Communist Party in Spain, which was small when the Civil War broke out, to infiltrate the Socialists and crush the Trotskyite POUM and the Anarchist CNT.
Caroline Glick (of the Jerusalem Post) holds that the situation in Egypt is analogous to that of Turkey a decade ago. That is, Turkish military vs AKP is analogous to Egyptian military vs Muslim Brotherhood. We all know what happened in Turkey: “Ten years later, Turkey is a populist, authoritarian, Islamic state. Half the general officer corps is in prison, held without charge or on trumped up charges. Turkey’s judiciary and civil service are controlled by Islamists. The AKP is filling the military’s officer corps with its loyalists.” (Glick).
I suppose Spengler will point out that Turkey has been far more robust over that decade than Egypt is now or can hope to be in the next ten years. So the AKP was able to keep the general population happy economically while stripping the once all powerful Turkish military of its authority. The Muslim Brotherhood does not have that option. But could it happen as Glick proposes? Wait and see …
Don’t worry David, Clifford Kincaid and other kept Beltway Rightists insist all radical Islamism is the sole product of KGB/FSB programming. Which explains all the bombs going off on the Moscow Metro, presumably (?). 9/11 Trutherism all comes from the Lubyanka except for Trutherism that blames the Russians. @ReginaldQuill and J.R. Nyquist told me so.
I don’t know when Claire Berlinski suddenly became an expert on everything, including Russia somehow being to blame for the Arab Spring (what? The Russians/Ukrainians/Kazahks didn’t export enough grain when they were hit by the great drought/wildfires of 2010 FEMA and the U.S. government helped them put out, but kinda late?). I’ve never met her but used to know people who have.
Again, sorry to be one note, but there’s a lot of BS floating around out there to keep the Cold War going forever and deflect intensive scrutiny of certain key figures out there…George Soros being one of them. Or deflect questions from why the State Department has become so solicitous of the Muslim Brotherhood from Cairo to Damascus.
Fine by me. Let them all go to hell together. The Muslim world cannot be reconciled with modern democracy. The quicker the US withdraws all aid, the sooner they will sink to their natural level.
David:
I don’t get it. Have you gone soft in old-age? The old Spengler I knew and loved made great sense advocating for creating rather than fighting against instability in Iraq, and penned such gems as “More Killing a Please”. Why do you criticize the President for making bloodshed more likely? An Egypt which is broke, starting, and at war with itself, is no threat to Israel or our interests. As you have so brilliantly observed in the past, Civil Wars continue until those who desire to fight to the death have been granted their wish. Stop trying to deny the Egyptians their right to do so.
I need to build web pages that are only accessible by logging into an account. What is the best web solution?