Category Archives: Middle East

China and Egypt: New Suez Silk Road

Charles Small holds an MSc in International Relations from the London School of Economics and Political Science (LSE), focusing on the relations between China and the Middle East. He speaks Arabic and Mandarin, and has worked in both China and Egypt. For a free consultation, email Charles at: charles@csmall.co.uk


China’s President Xi Jinping is visiting Cairo on 19-20 January in his first visit to the region. The visit is expected to see infrastructure deals signed, and provision of much-needed foreign exchange to Egypt’s banks.

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Much can be said of history. Chinese officials will talk of the six decades of relations between the two countries, rich cultural heritage of both nations, and the alignment of interests in the international sphere. Relations between China and Egypt are collegiate. The 1999 ‘strategic cooperation agreement’ between the two countries was upgraded in 2014 to a ‘comprehensive strategic partnership’. Egypt was a founding member of China’s Asian Infrastructure Investment Bank (AIIB), and the two participate in both the China-African Cooperation Forum and the China Arab-Cooperation Forum.

Egypt’s President Abdel Fattah Sisi is keen on building relations with the world’s second largest national economy, having visited China twice in 2015, and Egypt was one of only 17 countries to send troops to a Chinese military parade celebrating the 70th anniversary of the end of WWII. Symbolic events such as these help bolster the legitimacy of the Chinese state, and are a key pillar of maintaining domestic stability. That President Sisi recognises the importance of the domestic audience to China shows an deep understanding of the needs of the world’s largest emerging economy.

Egypt’s location straddling the Suez Canal makes it a key strategic partner for China. The recent expansion of the canal and implementation of a two-way section will ease the flow of Chinese goods to Western markets, and the Suez Canal Economic Zone presents opportunities for Chinese companies seeking a foothold by the Mediterranean.

What matters most to Egypt is what China can bring to the table. The visit is likely to include signing of multi-billion dollar agreements on key national infrastructure, including construction, energy and transportation.

Foreign Exchange Needed in Egyptian Banks

On the trip, President Xi is expected to sign off on a loan of US$1 billion to the Central Bank of Egypt, US$700 million in finance for the National Bank of Egypt Al-Ahly, and a further US$100 million loan to Banque Misr.

Egypt has struggled to attract foreign exchange reserves of late, in part due to the ongoing slump in tourism. Transfers of money from Egypt to China via Western Union have reportedly been curbed in order to prevent importers from bypassing capital controls imposed on Egyptian banks. The Central Bank is reportedly carrying out a policy of rationing, prioritising the import of essential goods over luxuries and limiting the dollar amounts of deposits. This has caused importers problems in opening letters of credit and clearing cargoes. While the Chinese loans will not solve Egypt’s structural problems, they will provide both foreign exchange, and multiplier effects on Egypt’s economy.

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President Xi is also to visit Iran and Saudi Arabia on his Middle Eastern tour.

Interested in China’s role in the Middle East? Get in touch for a free consultation by emailing Charles at:
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Salaries Crisis Plagues Islamic State and Kurdish Regional Government

The Islamic State (IS) and their opponents in the Kurdish Regional Government (KRG) share the same problem. The ongoing oil crisis has exacerbated a funding shortage in both administrations, which is leading to inability to maintain salary payments.

IS’ de facto treasury has announced that the group has halved the salaries paid to its fighters due to ‘exceptional circumstances’. According to the announcement, the decision will apply to all fighters regardless of rank.

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Much of this oil is reportedly smuggled through Turkey, bringing in much needed foreign exchange for IS, but the group has sustained significant damage to its oil fields, processing and distribution capacity.

IS-controlled fields in and around Deir Ezzour, including al-Omar, had reportedly produced 34-40,000 barrels per day for IS in late 2015, with a further 8,000 barrels per day coming from the Qayyara field near Mosul. At the time, this was estimated to generate around US$1.1 million per day in revenues for IS.

This source of revenue has been the target of coalition efforts. US air strikes have targeted oil facilities and supply lines since October 2015 as a part of Operation Tidal Wave II. British, French, and Russian strikes have also targeted the facilities. Indeed, the first British air strikes in Syria in December 2015 targeted the al-Omar oilfield near Deir Ezzour in IS-occupied Syria.

The impact of salary cuts on morale and loyalty should not be underestimated. With the region in deep economic crisis, many join IS due to the offer of financial stability.

Iraqi Kurdistan Faces Similar Strain

In Iraqi Kurdistan, KRG employees went on strikes on 18 January due to withholding of salaries by the regional government. Some employees had reportedly not been paid in four months. Members of the Education and Health Directorates in Raniya were among those on strike.

Staff of the Oil Production Directorate in Sulaymaniyah have also reportedly gone on strike for two days, with some claiming to have not been paid for five months.

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The KRG Ministry of Finance and Economic Affairs announced on 17 January that the Ministry of Education would receive half of the salaries owed for September 2015, and would be responsible for distribution. No date was given for the timing of the second half.

As well as suffering from the global slump in oil prices, and the cost of ongoing fighting against IS, the KRG is involved in a lengthy dispute with the Iraqi central government over budget allocation.

As IS and the KRG continue their conflict, loyalty of employees should be the top concern. Without a lifeline of salaries to offer potential recruits, IS may have to resort to harsher measures to maintain loyalty. Additionally, the KRG runs the risk of losing critical national infrastructure if the payments crisis continues, which would worsen the funding shortages in the long term.

Interested in the security situation in Iraq and Syria? Get in touch to discuss how we can protect you and your business by emailing Charles at:
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Israel-Jordan Border Crossing Fees: A Risk to Jordan’s Tourism Industry?

Visa requirements have been tightened at the Wadi Araba/Yitzhak Rabin border crossing connecting Aqaba to Eilat. As of January 2016, those using the crossing to enter Jordan will be required to apply for a visa two weeks in advance and pay a US$60 fee. Use of the crossing had previously been free of charge.

The border crossing is open to tourists and non-diplomats on the Israeli side seven days per week all year round, except for Yom Kippur and the first day of the Islamic New Year, 06:30-20:00 Sunday-Thursday, and 08:00-20:00 Friday-Saturday. On the Jordanian side, the crossing is open 06:30-21:00 Sunday-Thursday, and 08:00-20:00 Friday-Saturday.

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For those using the crossing to access Jordan, the fees will be charged on top of the 101 shekels (US$26) fee for those departing Israel. Additional VIP, daily workers, and cargo fees apply.

The two countries’ other two land border crossings are Jordan River Crossing/Sheikh Hussein Bridge, 90km from Amman, and the Allenby/King Hussein Bridge, 57km from Amman.

Royal Jordanian airlines offers several flights per day between Aqaba and Amman, and both Arkia Israel Airlines and Royal Jordanian offer regular flights between Amman and Tel Aviv.

Multiple entry business visas for Israel and Jordan are still available.

Wadi Araba-Yitzhak Rabin Crossing

Source: Israel Airports Authority

Tourism Decline and Stagnation to Continue

As a further disincentive to visit Jordan from Israel, we expect the fee to negatively affect travel and tourism in Jordan, particularly in reducing numbers of day trippers.

The Petra complex, under two hours’ drive from Aqaba, has already seen visitor numbers halve between 2010 and 2015, to reach only 400,000 last year. 10 of the 38 hotels situated in Petra’s neighbouring town Wadi Musa have shut, contributing to 1,500 job losses in the local tourism sector. Petra’s tourism chief commissioner has described the situation as a “crisis”.

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Travel and tourism has historically been attractive to investors in Jordan, contributing to JOD435.7 million (US$614.1 million) in 2013, 7.2% of total investment. In the same year, the sector contributed 5.3% of total GDP, directly supported 67,000 jobs, 4.5% of total employment, and indirectly supported 268,000 jobs, 17.9% of total employment.

World Bank figures show a recent decline in visitor numbers to Jordan, from 8.2 million in 2010 to 5.4 million in 2013.

The persistence of regional instability and increasing costs, mean that characteristics of low growth and declining visitor numbers in the industry are likely to remain.

Tourism in Jordan

Source: World Travel & Tourism Council

Aqaba Diversified

While the impact will be felt in Petra, Wadi Rum, and the resort areas of Aqaba, the city itself is diversified beyond travel and tourism.

As Jordan’s only port, Aqaba is essential to Jordan’s economy. Recent recurrent issues with industrial action have been settled, and the area is open to investment. At the 2015 World Economic Forum, the Kingdom presented US$1.1 billion in investment projects in Aqaba, including customs yard development, port expansion, the Aqaba railway, development of Aqaba’s King Hussein International Airport, and the Aqaba Yacht Club. Investment is also currently being sought for a new oil pipeline connecting Iraq and Egypt.

In addition, Aqaba boasts an autonomous Special Economic Zone, granting foreign ownership, taxation and labour incentives. Investment into Aqaba has already reached US$20 billion, far ahead of the SEZ’s original target of US$6 billion by 2020.

Interested in investing in Jordan? Get in touch for a free consultation by emailing Charles at:
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Egypt’s New Anti-Terrorism Law Approved

The Egyptian Parliament has approved a controversial new anti-terrorism law by 457 to 24 votes, with no amendments. The law imposes strict penalties on journalists, sets up special courts, and protects Egyptian security forces.

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The law had previously been issued under an executive decree by President Abdel Fattah al-Sisi in 2015. The Parliament is constitutionally obliged to either approve or reject such decrees within 15 days of its first session, which took place on 10 January.

The law will impose heavy fines on journalists contradicting official stories of militant attacks. Fines will be between EGP200,000 (US$25,500) and EGP500,000 (US$64,000). Average weekly wages in Egypt were only EGP806 (US$103) in 2014. The Cabinet agreed in July 2015 to remove a contentious Article which would have imposed two year prison sentences on those convicted of such acts.

The law authorises security personnel to use force during public disorder, and protects them from being prosecuted.

Related: Did IS or Muslim Brotherhood Attack Pyramids Tour Bus?

The law imposes the death penalty on anybody convicted of establishing or leading a terrorist organisation. Those joining such an organisation face up to 10 years imprisonment, or 25 years for those guilty of financing such organisations.

Sentences of five to seven years will be imposed on those inciting violence or creating websites to spread terrorist messages online.

An opposition leader of the Islamist Nour Party Mohamed Salah Khalifa has criticised the law for its ambiguity and potential to be used broadly. However, the Nour Party’s influence on the parliamentary process has been drastically reduced from occupying a quarter of the seats in the previous parliamentary session, to having only 12 seats today.

A related decree was also approved by Parliament. Under the decree, special military courts will be used to try those accused of attacking buildings or blocking roads. Such acts are a regular part of political protests in the country.

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As the new Parliament continues the agenda of President Sisi, Egypt is likely to continue to see regular crackdowns by security forces on opposition elements, including Islamist insurgents and political opponents.

The laws will protect government forces engaged with militants in the restive Sinai region, where hundreds of Egyptian security forces have been killed. The group Wilayat Sinai (Sinai Province), formerly known as Ansar Bait al-Maqdis, has pledge allegiance to the Islamic State, and has claimed responsibility for a number of recent attacks.

The law and decree will also facilitate the crackdown on the previous ruling party the Muslim Brotherhood, proscribed as a terrorist organisation by the current administration.

Interested in the Egyptian security situation? Get in touch to discuss how we can protect you and your business by emailing Charles at:
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Attack on Giza Pyramids Tour Bus

Islamic State affiliate Wilayat Sinai (Sinai Province) has reportedly claimed responsibility for an attack on a tour bus at the Three Pyramids Hotel, near the Giza pyramids, following a call from its leader Abu Bakr al-Baghdadi to target Jews everywhere.

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No casualties were reported in the attack by two masked gunmen on 14 January. Egypt’s Interior Ministry claimed that it was directed at security forces. Light arms including birdshot, fireworks and fire bombs were reportedly used by a mob of around 15 which had gathered near the hotel. Egyptian police responded with gunfire.

Close to 40 Israeli tourists were reportedly boarding the bus at the time of the attack. A spokesperson for Israel’s Foreign Ministry stated that the bus was used by a group of Arab Israeli tourists, but that the bus was empty at the time of the incident.

The Three Pyramids Hotel is located on a road leading to the Giza pyramids, which are southwest of the capital Cairo.

Related: Sharm el-Sheikh-UK Flights Should Resume, Says UK Parliamentary Delegation

Sinai Province also claimed responsibility for an attack on a natural gas pipeline in El-Arish, northern Sinai the following day, but Egyptian security forces expressed doubts about their capabilities.

One gunman was arrested at the scene, and another reportedly arrested later in the day. A further ten Muslim Brotherhood activists were reportedly arrested in response to the incident, including senior member Abed Al A’al Al Asiri and two of his sons.

An eyewitness claimed that when the mob assembled near the bus, shooting from the Egyptian police occurred before any violence, and that a member of the mob turned back after approaching the bus with a firebomb when he realised that the tourists were Israeli Arabs.

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The lack of sophistication in the weaponry of the attackers, and lack of knowledge of the apparent targets indicate that the attack itself was hastily planned and poorly organised. Nevertheless, the desire to attack Israelis was still apparent, and Israelis in Egypt should continue to take enhanced precautions.

Interested in the Egyptian security situation? Get in touch to discuss how we can protect you and your business by emailing Charles at:
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Sharm el-Sheikh-UK Flights Should Resume, Says UK Parliamentary Delegation

A UK parliamentary delegation has stated that they would recommend that Sharm el-Sheikh-UK flights be resumed.

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Flights to and from the UK from the Sinai Peninsla resort had been suspended following the downing of a Russian passenger plane in October 2015, and the scrutiny of security procedures in Sharm el-Sheikh airport which followed. A previous UK government delegation had visited in November to assess the situation, including the UK envoy on aviation security and counter-terrorism experts.

The delegation of the UK’s ruling Conservative Party politicians from both the House of Commons and House of Lords was received by Egypt’s Foreign Minister Sameh Shoukry. The delegation also met with Egyptian Prime Minister Sherif Ismail in Cairo on 17 January, discussing methods to boost bilateral cooperation, and the recent first session of the Egyptian Parliament.

Tourism, Jobs and Security in Egypt

According to World Travel & Tourism Council (WTTC) statistics, travel and tourism contributed EGP117.2bn to the country’s GDP in 2014, 5.9% of the total. This figure has been projected to rise by 4.5% per annum over the 2015-2025 period to reach EGP187.7bn in 2025. In 2014, travel and tourism directly supported 1,322,500 jobs, 5.2% of total employment, expected to rise to 1,708,000 by 2025. When including jobs indirectly supported by travel and tourism, the figure reached 2,944,000 in 2014.

President Sisi has pledged to reduce unemployment to 10% by 2020, and getting Egypt’s tourism industry back on its feet will be essential for this. According to Egypt’s Central Agency for Public Mobilization and Statistics, unemployment in Egypt reached 12.8% in the third quarter of 2015, down from 13.1% in the same period in 2014.

Related: Egyptian PM: No More Israel-Egypt Natural Gas Permits

President Sisi has publicly tied reducing unemployment to the country’s internal security issues. In a December announcement on cooperation between the armed forces and the Egypt Sinai Industrial Development and Investment Company in the extraction of marble in Sinai, Sisi claimed that providing job opportunities would reduce the spread of militancy in the country.

Jobs, of course, are not everything. Three European tourists were stabbed in an attack at the Red Sea resort Hurghada on 8 January 2016. For investors in Egypt’s tourism industry, a thorough understanding of the country’s security threats is essential.

Beyond Tourism

Egypt and the UK remain close partners. Prime Minister David Cameron was the first Western leader to visit Tahrir Square following the 2011 demonstrations, and has maintained close ties with the Sisi government. While human rights issues are often the focus of Egypt-UK relations, investment should be far more eye catching.

UK-based companies are some of the largest players in the Egyptian economy. In 2015, UK energy company BP pledged US$12bn of investments in Egyptian gas fields, and BG Group pledged US$4bn. Additionally, the UK’s Vodafone has the highest number of active subscribers to its mobile phone services in Egypt.

Interested in Egypt? Get in touch to discuss how we can help you make sense of the complexities of the Egyptian market by emailing Charles at:
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Egyptian PM: No More Israel-Egypt Natural Gas Permits

Egyptian Prime Minister Sherif Ismail has announced that permits will no longer be issued to companies importing gas from Israel, or cooperating with Israeli companies on natural gas deals.

Ismail also announced the suspension of negotiations between private Egyptian and Israeli companies on gas imports, pending a decision on Egypt’s appeal against an International Chamber of Commerce (ICC) ruling.

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The ICC has ordered the Egyptian Natural Gas Holding Company (EGAS) and Egyptian General Petroleum Corporation (EGPC) to pay Israel Electric Corporation (IEC) and Eastern Mediterranean Gas (EMG) US$1.76 billion and US$288 million respectively for damages caused by halting the supply of Israeli gas to Egypt.

Supply of gas to Israel was restricted in 2012, following recurrent attacks EMG’s pipelines in the Sinai Peninsula and constraints on Egyptian domestic supply.

An appeal is expected to be made against the ICC ruling in the Swiss courts within six weeks.

Related: Eastern Mediterranean Oil & Gas: The View from Egypt

Israeli Prime Minister Benjamin Netanyahu is to send a special envoy to Egypt to try to resolve the issue.

The Egyptian moves will shelve potential imports from Israel’s Leviathan gas field, managed by a consortium of consortium of the USA’s Noble Energy, and Israel’s Avner, Delek, and Ratio. Leviathan signed a Letter of Intent with Egyptian counterpart Delphinus last month for a US$10 billion supply of four billion cubic metres of gas per annum to Egypt over the next 10 to 15 years.

A similar deal had been signed between Delphinus and the Tamar gas field partners in March.

Agreements on Israeli gas supply to Egypt had been signed between Leviathan and the UK’s BG Group terminal in Idku, as well as between Tamar and Spain’s Union Fenosa plant in Damietta.

Industry Perspective

Those in the industry should position themselves for other long-term prospects. The ruling will not affect the Zohr natural gas field, the Mediterranean’s largest ever offshore gas field discovered recently by Italian energy giant ENI.

Long-term investor confidence should also be boosted by issuance of a joint statement this week by Cypriot, Egyptian and Greek leaders on resolving outstanding maritime border issues, and potential to export natural gas directly to the EU. Cyprus and Egypt have signed an MOU on potential exports to Egypt from Cyprus’ Aphrodite field through an undersea pipeline.

Interested in political risk in the Eastern Mediterranean? Get in touch to discuss how our tailored solutions meet your needs by emailing Charles at:
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Oman’s Five Year Plan to Halve Oil’s Contribution to GDP

Oman’s Supreme Council for Planning has released its 2016-2020 plan to halve the state’s dependence on oil.

At the core of the plan is reducing reliance on hydrocarbons by encouraging manufacturing, mining, transport, and tourism through 500 policies and programmes.

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With the aim of reducing oil’s contribution to the gross domestic product from 44 to 22 percent, and reducing natural gas’ contribution from 3.6 to 2.4 percent.

The plan is based on assumptions of constant production of 99,000 barrels per day in Oman, and prices of oil per barrel, being $45 in 2016, $55 in 2017 and 2018, and $60 for 2019 and 2020.

Public-private partnerships are prominent in the plan, and 52 percent of investment under it is expected to come from the private sector, a 10 percent increase from the previous plan.

Slashing Subsidies

As with the rest of the GCC, Oman is under intense pressure from rock bottom oil prices. Immediate effects will be felt in Oman’s slashing subsidies on fuel, housing loans and utility bills to 400 million rials ($1.04 billion), from 1.11 billion rials ($2.88 billion) in 2015.

The government forecasts its 2016 deficit to reach 13 percent of GDP. The Ministry of Finance has stated that it plans to plug the deficit with a combination of reserves, borrowing from international and local markets, and grants.

Looking for an in-depth report on Oman? Get in touch with Charles at:
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Eastern Mediterranean Oil & Gas: The View from Egypt

Greek Prime Minister Alexis Tsipras has announced consultations between Cyprus, Greece and Egypt on maritime borders in the Eastern Mediterranean, crucial to regional oil and gas exploration rights.

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Cyprus, Egypt and Greece have come closer in recent months, having held their first trilateral summit in Cairo in November 2014. At the summit, which focused on combating terrorism and energy extraction, leaders of Cyprus and Greece pledged to act as “ambassadors” of Egypt to the EU. Egyptian President Sisi described the summit as a “new phase of trilateral cooperation”.

Related: UK Election Result: What now for the EU and USA?

Under the previous Morsi-led government, Egypt announced in March 2013 that it would no longer respect its maritime borders with Cyprus and canceled a 2003 agreement with Cyprus defining Egypt’s Exclusive Economic Zone (EEZ) under the United Nations Convention on the Laws of the Sea. The Sisi government signed an agreement with Cyprus to restore its previous EEZ in December 2013, which gained presidential approval in September 2014.

The issue is particularly crucial to Egypt due to its drive to reduce subsidies. Natural gas subsidies were slashed in mid-2014, sending commercial prices up by 30-75 percent. As present low oil and gas prices can’t last forever, Egypt is making the most of this opportunity to secure a reliable supply. The Sisi government strategy on the issue appears clear; avoid Morsi-style brinksmanship over boundaries and reach a pragmatic solution to the issue. Cypriot and Egyptian ministries have recently signed a memorandum of understanding on natural gas facilitation, which is expected to lay the ground to facilitate further development of the Aphrodite gas field, a 100-billion cubic metre reservoir held by Noble Energy and the Delek Group.

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Conspicuous by its absence from the meetings, Turkey remains the elephant in the room. The biggest challenge for relations between the trio and Turkey remains as ever the issue of northern Cyprus, which has been under Turkish occupation since 1974. As a result, Turkey does not recognise agreements made by the Greek majority EU-member Cyprus. A more recent factor has been the vocal support of Turkish AKP President Erdogan for jailed former Egyptian President Morsi. Considering the upcoming 7 June 2015 Turkish general election, the trio would be wise to avoid direct confrontation with Turkey to keep the AKP from involving gas exploration in nationalist populism aimed at the domestic audience.

As Israeli regulatory uncertainty surrounds development of the Leviathan gas field, resources of the Aphrodite field may be mobilised to meet Egyptian demand. Such exploration requires a lot of work on the ground to make the project commercially viable. As it stands, cooperation between the trio is strong enough to lay the groundwork to secure Egypt’s natural gas supply.

Interested in political risk in the Eastern Mediterranean? Get in touch for a free consultation by emailing Charles at:
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