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A Seismic Shift In The Middle East: Saudi Arabia Cuts Off Egyptian Oil

Rigs

While the proxy war in the middle-east rages, a curious, and largely under the radar pivot has been taking place in one of the countries directly impacted by Hillary Clinton's foreign policy: Egypt.

In mid-October, we reported that, for the first time ever, Russia and Egypt would conduct joint military drills. This followed news that Russia will sell attack helicopters to the North African nation and invest billions in Egyptian infrastructure. These items, along with the fact that Egypt is eager to be re-granted Russian tourism rights for its citizens after recent bad blood between the countries, lead one to the logical conclusion that Egypt has every incentive to cooperate with Russia going forward.

This means when the Russian fleet reaches the Mediterranean - whether the intent is to park in those waters and bombard Aleppo, as some believe, or merely to project Russian might to the world, as others suggest - it will be flanked by friendlies on three sides. Turkey to the north, Syria to the east, and Egypt to the south.

It appears, however, that the quiet Egyptian pivot has not gone unnoticed by the U.S. and its mid-east allies, and on Monday, Saudi Arabia informed Egypt that critical shipments of oil products expected under a $23 billion aid deal have been halted indefinitely, which according to Reuters suggests a deepening rift between the Arab world's richest country and its most populous.

The official narrative is that while Saudi Arabia has been a major donor to Egypt since President Abdel Fattah al-Sisi seized power in a violent countercoup in mid-2013, Riyadh has become frustrated with Sisi's lack of economic reforms and his reluctance to be drawn into the conflict in Yemen. During a visit by Saudi King Salman in April, Saudi Arabia agreed to provide Egypt with 700,000 tonnes of refined oil products per month for five years, but the cargoes stopped arriving in early October as festering political tensions burst into the open. Related: $30 Oil Or Worse If OPEC Fails

What is curious is that the deal fell apart just weeks after Cairo suddenly became friendly with Moscow.

Egyptian officials claimed that the contract with Saudi Arabia's state oil firm Aramco remained valid and appeared to expect that oil would start flowing again soon, on Monday, however, Egyptian Oil Minister Tarek El Molla confirmed it had stopped shipments indefinitely. Aramco has not commented on the halt and did not respond to calls on Monday.

"They did not give us a reason," an oil ministry official told Reuters. "They only informed the authority about halting shipments of petroleum products until further notice."

So, with Saudi Arabia turning a cold shoulder to Egypt, what options are left? Well, one: "the enemy of my enemy is my friend", and sure enough oil minister El Molla's delegation said late on Sunday evening that he would visit Iran, Saudi Arabia's main political rival, to try to strike new oil deals, hinting that Egypt may be the latest to join a fledgling mid-east axis which includes Iran, Syria, Russia and just perhaps, Turkey.

Egypt and Iran's diplomatic relations have been strained since the 1970s, and is why according to Reuters, "an Egyptian official visiting Iran would cement a break in its alliance with Saudi Arabia and mark a seismic shift in the regional political order."

Of course, such a dramatic shift in the regional balance of power cannot come overnight, and is perhaps why speaking to reporters in Abu Dhabi, Molla said he was not going to Iran. An Iranian oil official later said that a report by the semi-official Mehr news agency suggesting Molla would meet his Iranian counterpart in Tehran on Monday was "incorrect". Egyptian Prime Minister Sherif Ismail also said Molla was not visiting Iran and Egypt was not negotiating with Tehran over importing oil products, state newspaper al-Ahram reported.

However, that was just a front, and according to Reuters, two security sources and the source in Molla's delegation said the minister had been scheduled to go, and the low-key visit was now delayed after the news became public. Related: OPEC’s Gloomy Long-Term Outlook For Oil Markets

Gulf Arab countries, led by Saudi Arabia, have pumped billions of dollars into Egypt's flagging economy since former general Sisi took over after a year of divisive rule by the Muslim Brotherhood. But with the Brotherhood threat diminished, Gulf rulers have grown disillusioned at what they consider Sisi's inability to reform an economy that has become a black hole for aid, and his reluctance to back them on the regional stage.

Meanwhile, as the facade of diplomatic normalcy slowly is pulled away, tensions between the former allies are set to escalate as Egypt has been reluctant to provide military backing for Riyadh's war against the Iranian-backed Houthi group in Yemen.

In Syria, where Saudi Arabia is a leading backer of rebels fighting against Iranian-backed Bashar al-Assad, Sisi has supported Russia's decision to bomb in support of the president.

A deal to hand over two Red Sea islands to Saudi Arabia, made at the same time as the oil aid agreement, has faced legal challenges and is now bogged down in an Egyptian court.

With the Russian fleet set to arrive in Syria in a few days, keep a close eye on what Egypt's next move will be.

By Zerohedge

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