Domestic Economy

An Opportunity for Egypt

An Opportunity for EgyptAn Opportunity for Egypt

In recent decades, relations between Egypt and Iran have not fared well. Egypt is currently the only Arab nation without an embassy in Iran. It should come as little surprise, therefore, that recent estimates place trade between the two regional powerhouses at a modest $331 million per year.

Moreover, external states have placed considerable restraints on bilateral ties. At present, sanctions imposed on Iran by the United States are the most obvious obstacle. The most relevant of these sanctions denies access to the American financial system to any nation that transacts with Iran without Washington’s authorization. Given the central importance of aid from the United States to the Egyptian economy, this represents a serious practical disincentive for Egypt to pursue commercial opportunities with Iran, wrote the Middle East Eye.

A less overt current of pressure against Egypt’s relationship with Iran originates from the former’s key regional ally, Saudi Arabia. Along with several of its Persian Gulf neighbors, Saudi Arabia has lavished crucial financial support on Egypt. At this year’s Egypt Economic Development Conference alone, Saudi Arabia, the United Arab Emirates and Kuwait pledged a combined total of $12 billion to the Egyptian economy. Egyptian President Abdel Fattah al-Sisi has repeatedly acknowledged the strength and importance of diplomatic ties between Egypt and “its brothers” in the Persian Gulf region.

By contrast, Saudi Arabia has matched its vigor in pursuing close relations to Egypt with its dogged determination to work against Iran’s national interest. The primary concern of Saudi Arabia seems to be its perception that Iran is seeking to extend its regional influence. In March 2015, this distrust of Iranian foreign policy culminated in the Saudi intervention in Yemen.

In this context, it is tempting to conclude that Egypt has declared its geopolitical hand. Iran was a conspicuous absentee from the Egypt Economic Development Conference earlier this year. Also in 2015, Sisi committed Egyptian forces to the Saudi intervention in Yemen. Given Egypt’s traumatic military history in that country, where thousands of Egyptian soldiers perished five decades ago during the North Yemen Civil War, Sisi’s support for the latest Yemeni campaign is significant. The potent cocktail of Saudi Arabia’s financial support and its antipathy towards Iran imposes a self-evident restraint on any Egyptian desire to engage in trade with Iran.

When the United States and European Union imposed a fresh round of sanctions on Iran in 2012, Iran had a surplus of oil products to sell immediately to a greatly constrained market. The previous Egyptian government, led by Mohammed Morsi, initially expressed “no objection” to purchasing Iranian oil. Within weeks, the Morsi administration retreated from this position. Several analysts suggest that the threat of the United States’ third-party sanctions, and the prospect of losing access to the American financial system, inspired the Egyptian policy about-face.

Following recent developments, this disincentive for Egyptian trade with Iran may soon fall away. On 14 July, Iran and the permanent five members of the UN Security Council plus Germany concluded the Iran nuclear deal. Analysts predict that US and EU sanctions may be lifted by early 2016. This would include removing the current prohibition on third party nations such as Egypt from trading directly with Iran.

 Shared Primary Priority

For both nations, combating the threat of fundamentalist terrorism is a key, even primary priority. Sisi has also made significant gestures of allegiance and friendship with Russia.

At a time when the geopolitical divide between Egypt and Iran is narrowing, commercial opportunities abound for trade between the two nations. For example, upon the removal of economic sanctions under the Iran nuclear deal, Iran has stated its desire to increase its oil production from its current rate of 1.2 million barrels per day to 2.3 million barrels per day. In order to maintain OPEC’s current oil price, Saudi Arabia or Iraq (the two OPEC nations that currently export more oil products than Iran) would need to reduce their oil output.

As Professor Nader Habibi of Brandeis University notes, however, neither nation is likely to accommodate the recovery of Iran’s oil industry in this way. In Iraq, both Arab and Kurdish oil producers are currently increasing oil output levels, and showing little appetite for scaling back this trend. Also it is no wonder that Saudi Arabia will be denying any boost to Iranian economic interests. Indeed, during the Iran-Iraq War, Saudi Arabia deliberately attacked the Iranian oil industry by flooding the global market with its reserves, causing a record plummet in the price of oil.

Without the support of OPEC, Iran will need to trade its enormous oil reserves aggressively in the post-sanctions world. Egypt, with its seemingly insatiable appetite for oil products, could capitalize on these circumstances and negotiate oil imports from Iran on very attractive terms. In fact, reopening bilateral trade between Egypt and Iran in the oil sector would reflect the existing reality that Egypt is already purchasing Iranian oil products, albeit indirectly.

Since 2012, Iran has partially maneuvered around economic sanctions by using the United Arab Emirates as an intermediary to sell Iranian oil products. Oil purchased from the UAE accounted for more than 60 percent of Egypt’s total imports for the year 2014.

 Beyond Oil

There are encouraging signs that the potential for developing increased commerce between Egypt and Iran is not limited to the oil sector. Ahmed al-Sayed al-Naggar, author of several studies on economic relations between the two countries identifies the Egyptian fruit industry as one attractive target for economic growth. For example, before 2010, Iran was the world’s third-largest importer of Egyptian oranges.

Since then, however, a series of Iranian bans on the importation of various agricultural products (including Egyptian oranges) has crippled trade between the two nations in this area. In December 2013, a US Foreign Agricultural Service report concluded that the Iranian economic sanctions also contributed to this commercial malaise, adversely affecting “the ability of importers to pay Egyptian suppliers through the normal channels”. The successful implementation of the Iran nuclear deal could revive this fruit export opportunity for Egypt.

The Sisi administration might also consider marketing Egypt as an important tourism destination for Iranians. In addition to Egypt’s most famous tourist attractions, the nation also boasts seven sacred Shia shrines. To put this in perspective, Syria has only one. Studies suggest that this current of religious tourism alone could lead an extra 50,000 Iranian tourists per year to travel to Egypt.

In summary, the lifting of economic sanctions contemplated by the Iran nuclear deal promises to remove a significant restraint on trade between Egypt and Iran. The second key restriction on Egyptian-Iranian relations, Saudi Arabia’s influential role in Egyptian politics, ostensibly remains. Yet at a time when Egypt and Iran’s political objectives are converging, Egyptian and Saudi aims appear to be drifting apart.