In Egypt Obama’s Between a Rock and a Hard Place

There has been nearly unanimous criticism of U.S. President Barack Obama’s handling of the revolution in Egypt.  However, I think a real reckoning of the situation reveals that the situation is enormously complex and any action requires careful consideration.

Therefore, I would like to point out the various complexities, not to defend Barack Obama, but to highlight what the real issues at stake are in Egypt as a concerned observer and as an investor.

First, before engaging in the full discussion, let’s talk about why we should be interested in the first place.  It is Egypt’s geography that makes it an important country.  Egypt sits at the northeast corner of Africa and it sits at the southeastern corner of the Mediterranean.  The country adjoins Israel via the Sinai peninsula, the Sudan and Libya.  Egypt’s Suez canal connects the Mediterranean to the Persian Gulf.

It is a frequent misunderstanding that Egypt is an oil and natural gas producer of some size.  But this is definitively not the case.  Egypt is a net importer of food.  And so forth.  So the reason that we care about this country geopolitically is because of its geographic location and because its government is secular and allied to the United States.  Which brings me to the rest of the discussion.

As the revolution unfolded Egypt stood as one of the United States’ oldest allies in the region.  Dating back to the regime of Anwar el Sadat over 30 years ago Egypt could be relied upon to support the United States in the region.  A problem with Iran?  Egypt was there to help.  A problem with Libya?  Egypt was helpful.  A problem with the Palestinians in the Gaza Strip?  Ditto that.  This loyalty was the choice of Egypt’s President Hosni Mubarak.

Was Hosni Mubarak a tyrant toward his people?  No.  Was he a tyrant to some of his people?  Yes.  Which ones?  Primarily the radicalized, more Islamist elements of his population.  Did Mubarak do everything he could to help his people domestically?  Definitely not.  But the United States’ interest in Egypt is not in its domestic politics, it is in Egypt’s ability to anchor North Africa as a bolster against nations less sympathetic the United States.

Unquestionably the United States’ perfect scenario with Egypt, as it is with all nations in the world, is that they have functioning, effective democracy and see the United States as a nation to build accord with and to be allied with.  But we don’t live in a perfect world.  So the United States has taken what Egypt and its Presidency has been willing to give it.  The collaboration with Egypt has mostly brought peace to the Middle East vis-a-vis Israel.

So as the revolution began to unfold and it was uncertain as to whether or not Mubarak would survive the protests the United States and Barack Obama had all of this to consider.

With this background established I am going to discuss various scenarios, some of which we know now are not going to occur.  Nonetheless they need to be discussed so that Barack Obama’s, and the United States’ position is more obvious.

1.  Mubarak survives the protests.  The opposition loses.

a)  The United States supported Mubarak.

1.  Mubarak is pleased that the ally he has long supported lent support to his regime in his time of need.  Therefore Mubarak is more loyal to the United States.

2.  The opposition forces inside of Egypt, who are ideologically very different than the United States, are deeply upset by the United States supporting a de facto dictator.  They do not forget the slight and the rage of the opposition toward the United States increases.

3.  Muslim nations in the region are extraordinarily upset with the hypocrisy of the United States.  On one hand they support democracy, but only if those that win the elections are allied to the United States.  Nations in the Middle East use the supposed hypocrisy of the United States against it amongst their own populations.  That is, the nations of the Middle East have a vested interest in the United States being the Great Satan because then the populations of these nations don’t focus on their own domestic oppressors, but instead on the U.S.

Net result: Neutral.  The U.S. maintains its ally, but the ally, Hosni Mubarak has a more fractured nation to govern.

b)  The United States supported the opposition.

1.  Mubarak no longer trusts the United States and it has either lost one of its strongest allies in the region – the most strategic on the planet – or it takes many years to rebuild the trust of the Mubarak regime (including the original most-likely-to-succeed-the-king, Mubarak’s son).

2.  The opposition inside of Egypt appreciates the United States’ efforts.  But the appreciation does not mean that the ideologies of the opposition and the United States pull closer together.  Not only that, but there could be a criticism from the opposition that the United States didn’t do enough to support the opposition.

3.  Nations in the Middle East have the same concerns about the U.S. that the opposition above does.  And they continue to use the United States as the bogeyman to distract their populations.

Net result: Bad.  The U.S. has lost its most valuable Arabic ally; the opposition may like the U.S. better, but ideological differences remain; and the other nations of the Middle East still use the U.S. as the bogeyman.

2.  Mubarak doesn’t survive the protests.  The opposition wins.

a)  The United States supported Mubarak.

1.  Mubarak is grateful, but who cares?  He takes his estimated family fortune of $70 billion and lives out his last few years very comfortably.  Perhaps supporters of Mubarak’s try and reinsert themselves into Egypt at some point in the future and they are grateful to the United States.  Either way, the United States has lost its ally.

2.  The opposition is outraged.  The rest of the world is outraged at U.S. hypocrisy.  The U.S. has only Israel as an ally in the Middle East – the most strategic region in the world.  Further, its possible that the opposition, which is ideologically very different from the U.S., actively thwarts and undermines the United States for many generations.

3.  Nations in the Middle East are outraged that the U.S. took an anti-Muslim position against the opposition forces of Egypt.  Meanwhile, these governments use the situation as an excuse to clamp down on their ‘extremist’ elements all the while blaming the United States for the region’s problems.

Net result: bad for the United States.

b)  The United States supported the opposition.

1.  Mubarak is extremely upset.  Who cares?  He can live out his days in exile.  However, it could be that the supporters of Mubarak within and without Egypt are embittered.  These folks may actively try and undermine the new Egyptian regime for generations to come.

2.  The opposition is delighted.  Now they can hold democratic elections if they want.  But what if they don’t want to hold democratic elections.  What if the only organized opposition force in Egypt, the Muslim Brotherhood, outlawed for over 60 years, instead seizes power for themselves exclusively?  The Muslim Brotherhood has seeded much of the Islamist militancy throughout the Middle East.  Furthermore, the U.S. and the rest of the Western world supported the “democratic” protesters in Iran in 1979 against their long-term ally, the Shah of Iran, only to have the extremely conservative religious leaders, who were united and organized, take over Iran.  To this day Iran is one of the most powerful nations in the Middle East and diametrically opposed to U.S. interests.  This could happen in Egypt, too.

3.  The nations of the Middle East are outraged at U.S. meddling.  In fact, if you take a look at Middle Eastern news sources from al Jazeera to al Bawaba on any random day throughout the crisis, various pundits have been accusing the U.S. of a coup, a revolution, of manipulation of the outcome, of a furtherance of the American empire.  Those nations generally neutral to the United States (like Jordan and Saudi Arabia) see how the U.S. dealt with an embattled ally, Mubarak.  In the future, their interactions with the U.S. are more tense.

Net: Neutral.  The U.S. may have a grateful Muslim Brotherhood in Egypt, but their ideology is not a close fit with U.S. views.  Furthermore, other nations suspect the U.S. may abandon them at any time.

Under every single one of these scenarios the U.S. at best finishes with a neutral outcome.  Yet, many people are outraged at Barack Obama’s “indecisiveness.”  The U.S. President is between a rock and a hard place: damned if he does, and damned if he doesn’t.  By my reasoning, the U.S. President is responding in the only way that makes sense, especially given how in flux the revolution in Egypt really is at this moment.

Those of you who might be opposed to Obama’s position, let me ask you this.  Before the crisis unfolded would you have supported a covert war on the part of the U.S. to undermine the nearly unanimous dictatorships throughout the Middle East even if that meant thousands of collateral civilian deaths?  Probably not.  But then who should the U.S. deal with in the Middle East who is palatable to your political predilections?  There are no democracies in the Middle East other than Israel’s democracy.

My problem with the various points of view critical of Obama (on both the left and right) throughout this crisis is that they are invoking archetypes to make their arguments.  On the left we have sympathy for the “democratic protesters.”  But just because they are opposed to a dictator doesn’t make them democratic.  It just means that they want power that they don’t have already.  On the right we have sympathy for our “long-term ally” and “friend.”  But Hosni Mubarak is not a gentle, understanding, “friend.”

So as rational and also intuitive investors, we are in the same position as the U.S. President, Barack Obama.  We are awaiting an outcome, all the while hoping that it will be favorable for our position.  Any other point of view seems naïve to me.

Jason