Egypt, cuts on energy subsidies and Israeli gas imports mark a policy shift from the Morsi era

Unlike his democratically elected predecessor who did not even dare to raise the prices of cigarettes and alcohol[1], Abdel Fatah al-Sisi and his government seem determined to take some decisive steps in order to save the country from a financial collapse. Dismantling the energy subsidies system and importing natural gas from Israel would have been considered as acts of insanity some months ago. Unbelievably, now they constitute the new economic reforms al-Sisi is willing to implement even if these decisions could put at risk his popularity.

Under the plan to eliminate power subsidies within five years the new government has already raised electricity prices, a politically sensitive topic together with food, transport and agriculture (traditional beneficiaries of a quarter of a State spending). The  5th July surprising decision of rising of fuel up to 78% has particularly alarmed the  Egyptians. Although Egyptian Prime Minister defended the unexpected measures, stating that this measure will bring much money on health and education, taxi and bus drivers’ spontaneous reaction was to block several roads throughout the neighborhoods of Cairo[2], offering an early test of al-Sisi’s popularity. Furthermore, Egyptians started to fear an increase in prices of consumer goods, especially of food.

Although a reform of energy subsidies represent a key policy step to revive an economy traumatized by three years of political turmoil, the new government should not underestimate the risk of a potential backlash which could reverse the current status quo. However, the new policy towards power subsidies is not the only sign of the significant transformation taken by the Egyptian leadership. In fact, as mention ed before, Egypt has recently warmed his attitude towards another historic protagonist of the Middle East scenario: Israel. According to the Oil Minister Sherif Ismail, given the economic crisis, importing gas from Israel is not a cause for “embarrassment” and working indirectly with this country “is no longer a taboo”. As in the past Egypt earned revenues exporting gas towards Europe, nowadays the domestic demand is so high that there is nothing left to send overseas.

Signing a deal with Israel would enable Egypt to export again natural gas abroad, which could give a significant help to the Egyptian economy as well as satisfaction of the internal demand. Furthermore,according to the Oil Minister “import is necessary to prevent gas companies working in Egypt from resorting to international arbitration to sue the government”[3].The possibility to make such agreement gives an idea of the dramatic energetic situation Egypt is facing. However, at the moment there is not an official deal but only a letter of intent signed by BG (a British large company) with companies in the Leviathan gas field to import gas to Egypt through an undersea pipeline. “The letter of intent is non-binding for Leviathan partners, as it is only an initial step and we are still in the early stages”, BG Group said.

Why al-Sisi is taking such revolutionary decisions? First of all, nascent reforms could enable Egypt to receive the $ 4.8 billion loan from the IMF that Morsi did not manage to obtain. Secondly, such economic reforms have been encouraged by western advisers among which the former UK Prime Minister Tony Blair stands out. Although he has issued an official statement where he denied his role of al-Sisi’s official adviser, several sources[4] State that the Middle East Peace envoy of the Quartet (US, UN, Russia and EU) has been advising President al-Sisi on economic reforms in collaboration with the program financed by United Arab Emirates (UAE).

More specifically, the UAE together with Saudi Arabia and Kuwait, who supported Egypt’s government since Morsi’s ouster in June 2013, has underwritten again aid worth at least $16bn to the former chief of the Egyptian army, Abdel Fattah al-Sisi. The “oily trinity”[5], who see Egypt as a pivotal country whose political and financial events can influence the entire Middle East, has chosen Cairo as the frontline in their battle against Islamism. This is the reason why the three Gulf monarchies are interested in Egypt’s stability and are bolstering the new administration up. Although some of aid has been in the form of free oil products, western analysts believe that the Gulf trio is now shifting towards projects’ assistance and loans.

But what is more impressive is Blair’s involvement in advising the Egyptian regime. Although he has officially denied to gain business opportunities from his collaboration to al-Sisi’s government, it is well known that the ex-leader of the British Labour Party and his companies have obtained several multimillion consultancy contracts with a wide range of private and public actors especially with repressive regimes (Kazakhstan, Kuwait and Colombia). Having said that, advising the new Egyptian leader might be even more contestable, especially if we consider the way he has been dealing with his political adversaries.

Claudia Conticello

Master’s degree in International Relations (LUISS “Guido Carli”)