America Can Exploit Saudi-Egyptian Tensions
Since Egyptian President Hosni Mubarak was overthrown by mass protests on February 11, 2011, the United States has struggled to convert its $1.3 billion annual military aid provisions to Egypt into consistent leverage over Cairo’s internal policies and international conduct. Instead of transitioning to democracy like many U.S. policymakers predicted, Egypt under President Abdel Fattah el-Sisi’s rule has set new standards for political repression. As Egypt has become economically dependent on the Saudi Arabia-led Gulf Cooperation Council (GCC) and strengthened its relationship with Russia, many U.S. foreign-policy analysts have called for a downgrade in the U.S.–Egypt strategic partnership.
Despite underlying tensions between Washington and Cairo, the United States should not dial down its alliance with Egypt. Sisi is on the cusp of realigning Egypt’s foreign policy in a way that could greatly benefit U.S. interests. Egypt’s refusal to make vital economic reforms, and Sisi’s criticisms of GCC policies have strained Cairo’s relationships with its strongest regional allies, Saudi Arabia and the United Arab Emirates (UAE). If the GCC threatens to cut or suspend aid to Cairo, Sisi will likely ask the United States to intervene on his behalf to ensure that Egypt avoids insolvency. If Egypt strengthens its relationship with the United States from a position of vulnerability, the United States could regain its former leverage over Egypt and greatly expand its influence in the Middle East.
Since the 2013 coup that propelled Sisi to power, Saudi Arabia and the UAE have been the primary providers of financial assistance to Egypt. However, GCC business elites have recently expressed frustration with Sisi’s unwillingness to implement necessary economic reforms. Even though Egypt is running an annual budget deficit of 12 percent of its GDP, the Egyptian parliament has refused to pass legislation to impose a value-added tax, end largely nonproductive food subsidies and reduce the size of Egypt’s bloated civilian bureaucracy.
Sisi has also antagonized his GCC patrons by spending much of the GCC’s financial assistance to Egypt on inefficient government programs and status-building projects. These expenditures have prevented mass protests against Sisi’s government, but have not improved Egypt’s economic competitiveness. To appease popular discontent caused by food price inflation, Sisi has pegged the Egyptian pound to an artificially high rate, and provided extensive government subsidies to wheat farmers. These subsidies have incentivized corruption. Egyptian government officials frequently exaggerate Egypt’s grain production to personally profit from government funds. Sisi has also used GCC funds to invest in the modernization of the Suez Canal. Modernizing one of Egypt’s most symbolically significant landmarks has rallied Egyptian nationalists around Sisi, but large-scale corruption has caused Egyptian government revenues from the Suez Canal to decline over the past year.
In response to Sisi’s misappropriation of GCC funds, Saudi Arabia and the UAE have threatened to reduce their financial assistance provisions to Egypt. In April 2016, a prominent Saudi business leader told Reuters that Riyadh would soon transition away from providing unconditional aid to Egypt in favor of providing loans and targeted investments. The UAE’s withdrawal of economic advisors from Egypt earlier this year was a striking display of frustration with Sisi’s intransigent opposition to economic liberalization reforms.
In response to wavering commitments from Egypt’s GCC sponsors and surging budget deficits, Sisi signed a landmark $12 billion bailout deal with the International Monetary Fund on August 11. As IMF funds will be accompanied by strict economic conditions, Sisi’s acceptance of IMF money demonstrates to Egypt’s GCC patrons that he is determined to reform Egypt’s struggling economy.
Even if Sisi takes belated steps towards reforming Egypt’s sclerotic economy, rising anti-Saudi sentiments amongst Egyptian nationalists could force Sisi to distance himself from Riyadh to strengthen his domestic position. Sisi’s April 2016 handover of two Red Sea islands to Saudi Arabia was subsequently revoked by an Egyptian court and fuelled rare antigovernment unrest on the streets of Cairo.
To demonstrate that he has not surrendered Egypt’s sovereignty to the GCC for financial assistance, Sisi has pandered to popular perceptions that the GCC is undercutting Egypt’s sovereignty. Even though a leaked tape revealing Sisi’s derision for his Gulf state donors strained Egypt’s relations with the GCC, Sisi has never publicly apologized for his comments. To demonstrate to Egyptian nationalists that Cairo is not becoming a client state of Riyadh, Sisi has refused to provide military assistance to Saudi Arabia’s anti-Assad campaign in Syria and air war against Houthi rebels in Yemen.