London/Cairo: Egypt has hit breaking point in its ability to pay for imports of oil, wheat and other basic commodities, forcing it to call in diplomatic favours or seek easy payment terms from suppliers who hope for future advantage in return.

Two years after ousting Hosni Mubarak, new, Islamist leaders are struggling to win a credit line from the IMF as they try to manage the hopes of 84 million people with a depreciating currency and an economy hooked on state subsidies but starved of tourism revenues since the political upheavals began.

Fuel shortages, tighter security at petrol stations and scuffles in the streets are becoming common in Egyptian towns as state importers struggle to meet demand for diesel and gasoline.

Though Egypt’s strategic importance means world powers seem unlikely to let its economy collapse, the credit crisis is now so acute that it can no longer buy crude in the market, leaving its oil minister scrambling to cut diplomatic deals with Libya, Qatar and Iraq, to add to an existing oil lifeline from Kuwait.

Fearing especially the unrest that might follow a shortage of subsidised bread, the government may prioritise fuel for the food industry. Richard Mallinson, an analyst at Energy Aspects in London said: “The focus is probably on ensuring farmers get enough diesel ahead of the harvest season and bakeries don’t run out of fuel as this could trigger food shortage.”

Difficulty

Officials have sought to assuage worries on food, banking on a record wheat crop coming in from next month. But it concedes that fuel supplies are a difficulty:

“The major problem we are facing of course is in the fuel sector,” government spokesman Ala’a Al Hadidi told Reuters. “This is being tackled and there has been gradual improvement.”

However, Egypt has not received a crude oil cargo from open market suppliers since January and, with money tight, the state grain buyer has not purchased wheat since February.

International trading houses Petraco and Arcadia were due to deliver crude after winning a tender, but the state importer, Egyptian General Petroleum Corp (EGPC) has cancelled both deliveries, several traders said. As a result, refineries are running well below capacity.

On Thursday, the oil ministry blamed repeated power cuts on a lack of funds to buy fuel for power stations.

Other sources

Elected last June, President Mohammad Mursi has faced sliding currency reserves, a soaring budget deficit and sometimes violent protests. And all the while, Egypt’s choice of suppliers has been eroded as its credit wears thin.

One government official said Cairo was casting around for other sources of commodities, and of finance for them:

“We are now open to other possibilities and our priority will be to serve our country’s interest and seek the country that gives us the best financial facilities and this could also mean that we are opening up to other markets, including Arab states,” the official said.

Egypt currently survives, hand to mouth, with funds arriving from Turkey, Iraq, most recently Libya and, most generously, $5 billion in loans from the ambitious Gulf emirate of Qatar.

“It looks like Egypt is running on a Qatari life support machine,” the head of a major international commodities trading house said. “But that cannot last forever.”

Crucial for the future is the $4.8-billion deal Egypt is seeking with the International Monetary Fund and a reduction in massive fuel subsidies, which eat up a fifth of state spending.

However, the government fears the domestic backlash subsidy reform would cause and seeks gentler terms.