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Fuel shortage puts a strain on Egypt

Lack of cash cuts flow of imports

Egyptians tried to keep order at a gas station line in Luxor on Saturday.

TARA TODRAS-WHITEHILL FOR THE NEW YORK TIMES

Egyptians tried to keep order at a gas station line in Luxor on Saturday.

QALYUBEYA, Egypt — A fuel shortage has helped send food prices soaring. Electricity is blacking out even before the summer. And gas-line gunfights have killed at least five people and wounded dozens over the past two weeks.

The root of the crisis, economists say, is that Egypt is running out of the hard currency it needs for fuel imports.

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The shortage is raising questions about Egypt’s ability to keep importing wheat that is essential to subsidized bread supplies, stirring fears of an economic catastrophe at a time when the government is already struggling to quell violent protests by its political rivals.

Farmers already lack fuel for the pumps that irrigate their fields, and they say they fear they will not have enough for the tractors to reap their wheat next month before it rots in the fields.

US officials are warning of disaster unless Egypt soon carries out a package of tax increases and subsidy cuts tied to a $4.8 billion loan from the International Monetary Fund. That would persuade other lenders that Egypt was creditworthy enough to obtain billions more in additional loans needed to meet its yawning deficit.

But fearful of a public reaction at a time when the streets are already near boiling, the government of President Mohammed Morsi has so far resisted an IMF deal, insisting that Egypt can wait.

Those who say Egypt cannot afford enough fuel are “trying to make problems for Morsi and his party,” said Naser el-Farash, the spokesman for the Ministry of Supply and Internal Trade and a fellow member of the Muslim Brotherhood’s political arm.

Farash placed blame for the shortage of fuel on corruption left over from the government of Hosni Mubarak, combined with hoarding inspired by fear-mongering in the private news media. “They are against the revolution,” he said.

Independent analysts say that the growing shortage of fuel and the fear about wheat imports now pose the gravest threats to Egypt’s fragile stability. “It has the potential to make things very, very bad,” said Yasser el-Shimy, an analyst for the International Crisis Group.

Egypt has held two years of unsuccessful talks with the IMF, and the current government is still balking at the politically painful package of overhauls — even as rising prices and unemployment make those measures more difficult with each passing day.

“They are operating on the notion that Egypt is too big to be allowed to fail, that the US and the West will step in,” Shimy said. “They think Egypt has a right to get the loan, and I think they will probably keep pushing all the way.”

Officials of the Morsi government have indicated that they prefer to wait until the election of a new Parliament, which might demonstrate broader public agreement on the need for changes. But a court decision striking down the election law has postponed the vote until at least the fall, and many economists say Egypt cannot endure the delay.

“The situation is pretty urgent, because the deterioration accelerates,” a Western diplomat said, speaking on the condition of anonymity under diplomatic protocols. Shortages, the diplomat said, are already leading to layoffs.

Energy subsidies make up as much as 30 percent of Egypt’s government spending, said Ragui Assaad, of the Economic Research Forum here.

The country imports much of its fuel, and for the first time last year it was forced to import some of the natural gas used to generate electricity — the reason for the recent blackouts. Egypt also imports about 75 percent of its wheat, mixing the superior foreign wheat with lower-quality domestic supplies to improve its subsidized bread.

But the two years of mayhem in the streets since the ouster of Mubarak have decimated tourism and foreign investment, crippling the economy. The government’s reserve of hard currency has fallen to about $13 billion from $36 billion two years ago.

About half of its currency reserves are in illiquid forms such as gold, economists say, while billions more are owed to the foreign companies that operate Egypt’s oil and gas fields.

As a result of the outflows of hard currency, the value of the Egyptian pound has also been falling.

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