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.)


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