"The army is the only institution that they're comfortable to work with": Egypt's military leaders have been buoyed by support from the Gulf monarchies.

"The army is the only institution that they're comfortable to work with": Egypt's military leaders have been buoyed by support from the Gulf monarchies. Photo: Reuters

Riyadh, Saudi Arabia: When Saudi Arabia's King Abdullah held talks with US Secretary of State John Kerry on November 4, his main concern wasn't US policy toward Iran's nuclear program or Syria's war as the visitors had expected: it was Egypt.

The king, 89, insisted that Egypt was too important to be allowed to fail, according to two people familiar with the talks, who requested anonymity because they weren't authorised to speak to the media. King Abdullah is already acting to make sure it doesn't, joining other Gulf monarchs to pledge $US15 billion in aid since Egypt's army under Abdel-Fattah al-Sisi ousted president Mohamed Mursi in July.

The Gulf allies are betting that their money can help build a stable Egypt run by sympathetic generals after three years of chaos. Saudi rulers deplored the fall of Hosni Mubarak in 2011, and worse still was the rise of Dr Mursi's Muslim Brotherhood, viewed by the Gulf's absolute monarchies as a threat because it seeks to bring political Islam to power via the ballot box.

Hedging their bets: US Secretary of State John Kerry with Saudi Foreign Minister Prince Saud al-Faisal in Montreux on January 22. Mr Kerry reportedly told the Saudi king in November that the US had done the minimum it could in response to the overthrow of Egypt's elected government.

Hedging their bets: US Secretary of State John Kerry with Saudi Foreign Minister Prince Saud al-Faisal in Montreux on January 22. Mr Kerry reportedly told the Saudi king in November that the US had done the minimum it could in response to the overthrow of Egypt's elected government. Photo: AP

Now the Brotherhood is in retreat, labelled a terrorist group, its leaders on trial and thousands of its supporters killed or jailed. Gulf money is likely to keep flowing, analysts say, in an effort to ensure that Egypt's latest rulers aren't dragged down by the economic failure that undermined Dr Mursi's rule.

The Gulf allies "without a doubt appear to want Sisi to become president," said Theodore Karasik, director of research at the Institute for Near East and Gulf Military Analysis in Dubai. "The generals present a strong willpower to keep Egypt stable. The Gulf states respect this mentality."

The army-backed government that took over from Dr Mursi inherited record unemployment and a budget deficit at 14 per cent of gross domestic product.

Money from Saudi Arabia, the United Arab Emirates and Kuwait has helped ease the pain, replenishing Egypt's foreign reserves and stemming the Egyptian pound's decline.

For three decades under Mr Mubarak, Egypt was a bit-part player on the international stage, though at least it was mostly solvent.

Now, even the Gulf money won't be enough to keep the country afloat indefinitely, and eventually "there will be a need for additional resources", said Mohamed Abu Basha, an economist at EFG-Hermes, Egypt's biggest investment bank. He said the Gulf monarchies can help out there too, by "lobbying for IMF support".

Three years of on-off talks between Egypt and the International Monetary Fund have failed to produce a deal. The US is the IMF's biggest shareholder, and there are signs that its policy is shifting since the Kerry-Abdullah meeting.

A longtime ally of Egypt's generals, the US has hedged its bets over their re-entry into politics. The Obama administration declined to call it a coup, yet it suspended military aid in October and has expressed concern about the killing of Mursi supporters.

Mr Kerry told King Abdullah that the US did the minimum it could under law in response to Dr Mursi's overthrow, according to a person briefed on the matter. 

Last month, a team of US officials from the Treasury and State Department met UAE and Saudi counterparts to discuss measures to restore investor confidence in Egypt.

Money, though, won't be enough to bring stability to Egypt. The Saudi-backed crackdown on the Muslim Brotherhood, which has won every election since Mr Mubarak's fall, is an obstacle to a solution, according to Anthony Dworkin and Helene Michow at the European Council on Foreign Relations.

"Egypt's economic and social problems cannot be solved without a political settlement that enjoys broad-based acceptance," they wrote in a paper published last week.

Since Dr Mursi's overthrow, security forces have killed hundreds of his supporters in clashes across the country. Most of the group's senior leaders are on trial for charges including inciting violence and murder. Last month, the interim government classified the organisation as a terrorist group, blaming it for a string of bombings without providing evidence.

Yet a September survey found support for Field Marshal Sisi and Dr Mursi was almost equal.

That highlights the risks Gulf countries are taking in their bet on Egypt, said Paul Sullivan, a Middle East specialist at Georgetown University in Washington.

"One of the biggest pitfalls is the potential blowback by the Muslim Brotherhood and their allies," Dr Sullivan said. "Getting rid of Mursi and some supporters isn't the same thing as getting rid of the instability that the Brotherhood and related groups can cause in the future."

Only Qatar among the Gulf monarchies backed the Brotherhood in Egypt, sending billions of dollars of aid when Dr Mursi was in power. Since his fall, Egypt has sent back some of the money, and arrested journalists from the Qatar-owned al-Jazeera television channel. Earlier this month it summoned the Qatari ambassador to protest "interference in internal affairs".

For Saudi Arabia and the UAE, though, Dr Mursi's presidency interrupted more than two decades of close ties with Egypt under Mr Mubarak, a former air force commander.

"The army is the only institution that they're comfortable to work with," Ghanem Nuseibeh, founder of Cornerstone Global Associates, which advises clients on risk in the Middle East, said from Abu Dhabi. "The army doesn't have the capability to run the economy," which is why the Gulf states are "trying to provide technical assistance."

"If the wrong people come to power," Mr Nuseibeh said, "it will be a dilemma whether to continue pouring money into a black hole, which is what Egypt potentially is."

Bloomberg