How Resource Shortages Sparked Egypt's Months-Long Crisis

The country has battled water shortages, rising food prices, and declining oil production, and it's fueling the current conflict.
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People argue at a petrol station during a fuel shortage in Cairo. (Mohamed Abd El Ghany/Reuters)

With more than 600 people killed and almost 4,000 injured from clashes between Egyptian security forces and Muslim Brotherhood protesters, the country's democratic prospects look dismal. But while the violence is largely framed as a conflict between Islamism and secularism, the roots of the crisis run far deeper. Egypt is in fact on the brink of a protracted state-collapse process driven by intensifying resource scarcity.

Since the unilateral deposition of President Morsi, the army's purported efforts to "restore order" are fast-tracking the country toward civil war. The declaration of a month-long state of emergency--ironically in the name of defending "democracy"--suggests we are witnessing the dawn of a new era of unprecedented violence with the potential to destabilize the entire region.

Underlying growing instability is the Egyptian state's increasing inability to contain the devastating social impacts of interconnected energy, water and food crises over the last few decades. Those crises, already afflicting other regional states like Yemen and Syria, will unravel prevailing political orders with devastating consequences--unless urgent structural transformation to address those crises becomes a priority. The upshot is that Egypt's meltdown represents the culmination of long-standing trends that, without a change of course, can only escalate with permanent repercussions across the Middle East and North Africa (MENA), and beyond.

A major turning point for Egypt arrived in 1996, when Egypt's domestic oil production peaked at about 935,000 barrels per day (bpd), dropping since then to about 720,000 bpd in 2012. Yet Egypt's domestic oil consumption has increased steadily over the past decade by about 3 percent a year. Since 2010, oil consumption--currently at 755,000 bpd--has outpaced production. It is no coincidence that the following year, Hosni Mubarak was toppled.

oil production and consumption in egypt

With Egypt's oil production well past its peak, its exports since 1996 have increasingly declined, despite inputs from new gas production. In 2009, oil exports had dropped by 26 percent (pdf). According to Jean Laherrère, a petroleum geologist formerly with the French major Total S.A., two-thirds of Egypt's oil reserves have likely been depleted, and annual decline rates are already at around 3.4 percent.

egypt oil

The impact on Egypt's state revenues has been dramatic. Energy subsidies amount to $15 billion a year, about a quarter of the entire budget, driven largely by expanding consumption needs for a growing domestic population. Over the last decade, Egypt's gas use has almost doubled, nearly matching production, further limiting the country's exporting capacity and, thus, hard currency revenues , reserves of which have more than halved in two years. Around another $3 billion a year goes to food. In total, 10 percent of its GDP is spent on subsidies.

With state revenues declining, how had Egypt sustained levels of growth of around 7 percent in the two years preceding the 2008 global banking crisis--even winning praise from the World Bank, which described the government as a "top reformer"?

The answer is simple: Egypt had financed increasing expenditures through one core mechanism: borrowing. Over the last decade, government debt has averaged about 85.5 percent of GDP. In 2011, Egypt registered a balance of payments deficit of $18.3 billion . The situation has become unsustainable as the state is increasingly unable to service myriad debts, has desperately attempted to identify viable sources of new oil and gas imports, but cannot muster the capital to secure them.

The heyday of growth, in other words, was achieved at a heavy social cost that is now being paid on the streets in blood.

Increasing energy consumption, of course, is tied to an expanding population, which has grown exponentially by 21 percent since 2000 to about 80 million people.

egypt populaiton

Rapid population growth and continued economic mismanagement has meant that youth represent about 25 percent of the population--but more than half of them suffer from poverty and unemployment. Economic mismanagement, much of which was quietly championed by the IMF and the World Bank (though they have now belatedly noticed that much of the policies they previously encouraged are now deeply problematic), has caused a widening of overall poverty while enriching mostly Egyptian elites.

With some 40 percent of the population living on $2 a day or less, and rates of illiteracy and unemployment hovering around a third of the population, it was only a matter of time before economic grievances translated into political outrage. The trigger factor, though, was food--on which a quarter of Egyptians spend more than half their incomes.

As food subsidies have declined in the context of declining state revenues, local food prices have shot up. Once upon a time--in the 1960s--Egypt was completely self-sufficient in food production. Encouraged by international financial institutions to foster its export capacity, Egypt is now a net food importer, importing about 70 percent of its food (paywall), and thus, vulnerable to global food price fluctuations.

As energy accounts for over a third of the costs of grain production (pdf), high food prices are generally underpinned by high oil prices. Since 2005, world oil production has remained on an undulating plateau that has kept prices high, contributing to surging global food prices. According to the New England Complex Systems Institute, if food prices go over a threshold of 210 on the FAO Food Price Index, the probability of civil unrest is greatly magnified.

Global wheat prices doubled (pdf) from $157/metric tonnes ($173/ton) in June 2010 to $326/metric tonne ($359/ton) in February 201 (the same month Mubarak fell) while half the population was dependent on food rations. That year, the FAO Index averaged about 228, the highest since FAO started measuring international food prices in 1990. The second highest average occurred in 2008--the same year Egypt experienced violent clashes over government-subsidized bread in different cities, leading to 15 people being killed and 300 arrests.

Since then, the index has hovered consistently above 210, and in May 2013 before Tahrir Square was flooded by millions of Egyptians, it was at 213. Although currently at 205, the Worldwatch Institute warns that food prices will trend higher and be more volatile in coming years and decades. This is consistent with the last decade, over which the World Bank global food price index has increased 104.5 percent, at an average annual rate of 6.5 percent.

fao

Perhaps the biggest driver of rocketing food prices in 2011, however, was the unprecedented impact of climate change in the world's major food basket regions, pushing up global cereal prices to record levels.

Droughts and heat-waves in the U.S., Russia, and China since 2010 led to a sharp drop in wheat yields, on which Egypt is heavily dependent.

That same year, Egypt's water shortages sparked tens of thousands of people to take to the streets in different parts of the country, primarily farmers protesting the growing inability to irrigate their farms--making tens of thousands of hectares of farmland impossible to cultivate. Egyptians in the 1960s enjoyed a water share per capita of 2,800 cubic meters (98,881 cubic feet) for all purposes. The current share has dropped to 660 cubic meters (23,307 cubic feet)--well below the international standard defining water poverty at 1,000 cubic meters (35,314 cubic feet).

Egypt is already water scarce, and the combination of local climate change impacts, water mismanagement and regional geopolitics could choke off the country's water supplies by 2025, when it will need 20 percent more water than it currently has. But around this time, its thirsty neighbors like Ethiopia and Burundi may well have loosened Egypt's current grip on the Nile River, which supplies 95 percent of Egypt's freshwater, for their own use.

Egypt's resource crisis is more than the primary driver of its own collapse: It could potentially destabilize the entire region, if not the world.

The protracted collapse of the Egyptian state poses a major strategic disaster for U.S. interests. Since the Nixon Doctrine, regional U.S. policy looked to local "surrogate" regimes--Israel, Iran (under the Shah), and Saudi Arabia--as the region's three main "pillars" on which U.S. influence rested. In 1973, U.S.     senator and oil expert Henry Jackson noted that Israel and the Shah's Iran were "reliable friends of the United States" who, along with Saudi Arabia, "have served to inhibit and contain those irresponsible and radical elements in certain Arab states...who, were they free to do so, would pose a grave threat indeed to our principal source of petroleum in the Persian Gulf."

The inauguration of Mubarak's rule in 1981 was a major factor in absorbing Egypt into this orbit of power, the strategic contours of which were aptly described in a secret 2009 U.S. State Department cable on the $1.3 billion in U.S. military aid for his regime: "The tangible benefits to our mil-mil relationship are clear: Egypt remains at peace with Israel, and the U.S. military enjoys priority access to the Suez canal and Egyptian airspace."

With Iran and Syria now members of the "Axis of Evil," the potential loss of a friendly regime in Egypt would strike a major blow to U.S. regional interests and international stability. It would potentially endanger Israel, but also challenge access to the Suez, a strategic choke point shipping 4.5 million bpd of oil and carrying 7.5 percent of world trade.

A shutdown of the Suez due to civil unrest would have a massive impact on oil prices and supplies that would undermine Western interests generally and even generate a global economic shock (pdf). This could explain President Obama's insistence on maintaining military aid to the Egyptian army--anything, it seems, to "inhibit and contain" those "irresponsible and radical" Arabs bringing down regime after regime across a region the West cannot afford to lose influence over. Obama is hardly alone, though - Britain, the EU, Saudi Arabia, Qatar among are still maintaining aid relations.

But these short-sighted decisions fail to appreciate that the Egyptian Army has already lost this war of its own starting. Not simply because the cycle of violence now initiated cannot but escalate as neither side will capitulate, radicalizing a new generation and inviting al-Qaeda affiliated extremists to make up for recent losses by exploiting Egypt's suffering. But also because the deeper systemic causes of Egyptian rage remain neglected.

And those systemic issues are hardly unique to Egypt. A similar confluence of climate, energy and economic factors are amplifying political polarization, in turn fueling conflict, in Syria and Yemen. While each must of course be understood in their own unique local contexts, their common drivers must be recognized.

The case of Egypt and others illustrate the extent to which the MENA region is vulnerable to the destabilizing impact of these crises. The region contains 12 of the 15 most water-scarce nations in the world--with an average of less than 1,000 cubic meters (35,314 cubic feet) of fresh water per person, per year--including Algeria, Libya, Tunisia, Jordan, Qatar, Saudi Arabia, Yemen, Oman, UAE, Kuwait, Bahrain, Israel and Palestine. In eight of these countries, available fresh water is less than 250 cubic meters (8,828 cubic feet).

Although birth rates are falling, a third of the region's overall population is below 15 years old, and large numbers of young women either are or soon will be reaching reproductive age. According to the U.K. Ministry of Defence, the Middle East's population will increase by 132 percent, and that of sub-Saharan Africa by 81 percent by 2035.

Such demographic pressures will likely halve freshwater availability, exacerbating the danger of regional water wars. Indeed, as early as 2015, the average Arab will be forced to survive on less than 500 cubic meters (17,657 cubic feet) of water a year, a level defined as severe scarcity. This will have a devastating effect on already flailing regional agriculture.

But another major worry is oil production. New evidence suggests that the Gulf powers face the prospect of imminent production peaks. Leaked State Department cables show that the US government privately believes that Saudi Arabia's oil reserves may have been overstated by as much as 300 billion barrels--nearly 40 percent. By around 2020, Saudi Arabia will be unable to increase production , confronting instead a future of decline--indeed, its oil exports have already begun falling as it increasingly uses up production for domestic needs.

That in turn would mean a catastrophic loss of state revenues, not just for Saudi Arabia, but for the other Gulf powers which have much smaller reserves. The post-peak Gulf would not only usher in a world of extreme energy volatility--oil prices remain closely tied to production from the region--it would render these kingdoms highly vulnerable to the converging crises already at play in countries like Egypt, Syria and Yemen.

The implication is stark. If business-as-usual continues, Egypt today is very much a window into a near-future that would make dystopian science fiction look like high fantasy.

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Nafeez Mosaddeq Ahmed is the executive director for the Institute for Policy research and Development.

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