Egypt is not only hungry for energy—it’s starving, and this starvation will play a role in the underlying revolutionary instability that has foreign investors asking whether the other boot is about to drop and should they quit the country.

Most immediately, Egypt is hoping to buy 968,000 tons of diesel fuel for April-June delivery to stave off a worse energy crisis amid country-wide protests that threaten the Muslim Brotherhood’s hold on power ahead of April parliamentary elections.

The past four weeks have been very rough—against the backdrop of political unrest, tensions simmer as a result of fuel shortages that have people lining up for hours outside gas stations.

Diesel is experiencing an acute shortage and public transportation is suffering for it, while the add-on effects are rises in food prices, particularly agricultural products.

The government is in a quandary over fuel subsidies and hasn’t yet decided on its next move. There are a number of proposals out there. One is to reduce oil subsidies by 10% over the next 5 years—if the government lasts that long. The tradeoff is a promise to increase salaries by the same amount. They are also toying with rationing subsidized fuel, or buying more partially subsidized fuel instead of reducing subsidies. Another idea is to hand out cash subsidies to replace in-kind subsidies. 

Cairo had already spent $8.1 billion in the first half of the current fiscal year 2012/13 on energy subsidies, and the total for the full fiscal year will be around $16.3 billion.

Whatever the solution—the fact of the matter is that the government will find it critical in the coming weeks and months to provide more fuel.

The economic indicators are not good. Egypt’s foreign reserves fell by almost 10% in January alone. At the same time, there are serious doubts as to whether Egypt will get its hoped-for $4.8 billion IMF loan in time to do anything useful with it—namely, before its foreign currency reserves are entirely depleted, or before the Egypt Pound is fully devaluated.

It’s a nightmare scenario for the short-term investor, but for the longer term—and with an eye on the energy industry—consider this: The Suez Canal.


Jen Alic

Jen Alic is a geopolitical analyst, co-founder of ISA Intel (www.isaintel.com) in Sarajevo and the former editor-in-chief of ISN Security Watch in Zurich
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