Bloomberg News

Arab States’ Aid to Egypt Seen as Effort to Block Iran Influence

July 06, 2011

(See EXTRA and MET for more on Middle East unrest.)

July 6 (Bloomberg) -- The United Arab Emirates joined Saudi Arabia in offering a multibillion dollar economic assistance package to Egypt as it seeks to block the way for Iranian influence in post-Mubarak Egypt, analysts said.

With Egypt’s first elections since the fall of President Hosni Mubarak due in September, members of the interim government are touring the Persian Gulf to get support for their country’s ailing economy. The benefit of aiding Egypt is twofold for nations including Saudi Arabia, the U.A.E. and Kuwait: They can assert claims that Iran is meddlesome while benefiting from opportunities in Egypt, the Arab world’s most populous nation.

“Moving away from the established orbit of Egypt being part of an axis that views Iranian involvement in the region with suspicion and hostility is a major concern for the Gulf states,” Salman Shaikh, director of Brookings Doha Center in Qatar, said in a telephone interview yesterday. “There is in this changing and fluctuating region a competition taking place to shape the region and Egypt is very pivotal in that. Simply put, Egypt matters.”

Members of the Gulf Cooperation Council, a bloc of six Sunni Muslim-dominated nations, have accused Iran, the region’s main Shiite Muslim power, of meddling in regional affairs. Bahrain says Iran assisted Bahraini Shiite protesters seeking to overthrow the monarchy. Kuwait has expelled a number of Iranian diplomats for spying, and the U.A.E. is embroiled in a territorial dispute with Iran over three Persian Gulf islands.

Businesses, Housing

The U.A.E. committed $3 billion to Egypt yesterday following a visit by interim Prime Minister Essam Sharaf to Abu Dhabi. The funds will be directed toward Egypt’s small- and medium-sized businesses and housing projects. Saudi Arabia offered budgetary aid worth $4 billion in May, and Qatar is expected to announce a package “soon,” Egypt’s Finance Minister Samir Radwan said July 4, adding that Egypt won’t require assistance from the International Monetary Fund or World Bank as long as Gulf allies are willing to help.

“Gulf countries know that if there is a serious change in Egypt, it will affect the whole region,” Moustafa el-Husseini, author of “Egypt on the Brink of the Unknown,” said yesterday in a telephone interview from Cairo. They are “worried about more Iranian and Turkish influence in the region.”

Mubarak was overthrown in February after a 19-day popular revolt fueled by grievances over issues including unemployment and complaints of police brutality. Less than two weeks after Mubarak was toppled, Egypt allowed two Iranian warships to use the Suez Canal to reach the Mediterranean Sea. The decision prompted an outcry from Israel, which alleged Iran sought to use Egypt’s vulnerability to intimidate countries in the region.

Middle East Divide

Iran and Egypt have been on opposite sides of the Middle East divide since ending full diplomatic relations in 1979 after the Iranian Revolution that brought Shiite clerics to power. In March, Egypt’s then-Foreign Minister Nabil el-Arabi said his country’s “government doesn’t consider Iran to be an enemy state” and that “we’re opening a new page with all countries, including Iran,” Egypt’s state-run Middle East News Agency reported.

Iran continues to take credit for the political changes that began sweeping the Middle East and North Africa early this year. Mohammad Ali Ansari, head of the ideological department of the Iranian military’s naval forces, said July 2 that the regional uprisings are “offshoots” of his nation’s revolution, Iran’s state-run Fars news agency reported.

Unrest Saps Growth

The unrest has dimmed prospects for Egyptian growth. The International Monetary Fund said in April that the country’s economy will slow “significantly,” cutting its 2011 forecast to 1 percent from 5 percent, as the aftermath of the turmoil weighs on investments. Tourism plummeted by 80 percent in February and investment dropped 26 percent, Fitch Ratings Ltd. said July 1.

“There’s no debate over Egypt’s long-term potential,” Simon Williams, chief Middle East economist at HSBC Holdings Plc in Dubai, said by phone yesterday. Gulf-based investors recognize that Egypt has “a large, young population, great geographical location, unique appeal as a tourist destination, potential for agriculture; and the service-sector and manufacturing-base growth is clear.”

Countries in the Persian Gulf were vocal supporters of the Mubarak regime in the early days of the revolution and have since supported the democratic aspirations of Egyptian citizens. Only Bahrain and Oman have seen similar popular revolts, while other Gulf countries, including Saudi Arabia, have sought to quell protests through increases in public spending.

Gates Accuses Iran

Former U.S. Defense Secretary Robert Gates accused Iran last week of stepping up efforts to wield influence in the Middle East and the Persian Gulf region. The pattern has become particularly evident since revolts began against authoritarian rule in Tunisia, Egypt and elsewhere, he said.

Sharaf said yesterday that Egypt’s position toward Iran hasn’t changed, although he declined to say whether Iran was the source of recently reported tensions between Egypt and the U.A.E. The Supreme Council of the Egyptian Armed Forces said April 26 that Egypt wasn’t receiving any external pressure from Saudi Arabia and the U.A.E., the Emirates News Agency reported April 26, following reports that Egyptians were being denied visitor and residency visas for the Gulf states.

Several members of Egypt’s Muslim Brotherhood, the country’s biggest and best-organized opposition group under Mubarak, have said that they encourage dialogue with all regional parties.

“We support ensuring the Egyptian and Arab national security and holding a dialogue with Iran and Turkey that can achieve security and economic development for the region,” said Essam el-Erian, deputy leader of the Freedom and Justice Party, which is affiliated with the Muslim Brotherhood. Those who support that stance “will benefit and who try and stop it will fail,” he said yesterday in a telephone interview from Cairo.

--With assistance from Dahlia Kholaif and Fiona MacDonald in Kuwait City, and Robert Tuttle in Doha. Editors: Heather Langan, Digby Lidstone

To contact the reporters on this story: Vivian Salama in Abu Dhabi at vsalama@bloomberg.net; Alaa Shahine in Dubai at asalha@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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