Egypt's comeback as a regional powerbroker carries risks and conceals challenges at home

The crisis in Gaza has brought Egypt's role as one of the region’s primary powerbrokers back into the spotlight, as governments scramble to stop the conflict spreading across the Middle East.

Egypt has enthusiastically celebrated its diplomatic comeback, engaging in intense, high-profile meetings with top officials from regional and world powers and espousing to a global audience its views on the war, now in its third week, and its likely consequences.

But Cairo faces a difficult balancing act.

Analysts warn that the high-stakes diplomacy Egypt is engaged in cannot conceal trepidation over the fallout of a ruinous war raging unabated on its doorstep. For now, the crisis in Gaza has pushed to the background a rapidly worsening economy, growing anti-western sentiment and worrisome signs of dissent.

Recently Cairo has been the go-to capital for dozens of western leaders and officials. They flew into the city or convened telephone talks with Egyptian leaders to enlist their expertise and relations with Gaza’s Palestinian militant groups to secure the release of more than 200 hostages taken when Hamas rampaged through southern Israel on October 7, killing 1,400, including women and children.

The Rafah border crossing with Gaza in the north of the Sinai Peninsula has become the focus of the world as Egypt undertakes the difficult task of arranging and dispatching humanitarian aid to Gaza, while the Israelis refuse to allow a let-up in their devastating bombardment. The death toll in the densely populated enclave has now soared towards 6,000 according to the Hamas-run health ministry.

Egyptian officials say some foreign callers to Cairo have relayed an Israeli request that Egypt offers a temporary safe haven for Gaza’s Palestinians in Sinai while it prosecutes its military operation, which it warns will annihilate Hamas.

The request, according to the officials, was in some cases sweetened by promises of debt forgiveness and significant direct investment.

Egypt has indignantly declined the offers despite its desperate need for help to revive its ailing economy. It believes any Palestinians it offered a temporary home to would never be allowed back to Gaza.

They also believe such a “solution” would tempt militants to attack Israel from Egypt, which would then become a target for Israeli revenge attacks.

If a Palestinian exodus from Gaza to Sinai does happen, Egypt maintains, it would contribute to what it believes is a scheme to “liquidate” the Palestinian cause.

That, many in Egypt and elsewhere think, would be a repeat of the “nakba”, when hundreds of thousands of Palestinians fled or were forced to leave their homes during Israel’s 1948 creation. A similar scenario, albeit on a smaller scale, unfolded when Israel captured the West Bank in the 1967 Arab-Israeli war.

“Egypt is dealing with a gravely serious issue and is coming under tremendous pressure at a particularly vulnerable time on account of the terrible state of the economy,” said one official.

“Egypt’s refusal to grant Israel’s wish has resulted in some heated and undiplomatic exchanges with some of those western callers,” he added, without naming any of those involved.

However, Michael Hanna, of the International Crisis Group, says Egypt may not be able to indefinitely hold off Palestinians fleeing the bombardment in Gaza to Sinai.

“Egypt’s firm stand against the transfer of Palestinians is shared and supported by most Arab nations,” said Mr Hanna, who is the director of the ICG’s US programme.

“Egypt, understandably, doesn’t want to see that kind of burden placed on its shoulders, but if present conditions in Gaza continue and Israel’s ground offensive materialises, there will be nowhere for the Palestinians to go except Egypt.”

In resisting pressure to open the door for Gaza’s Palestinians, Egypt is avoiding the wrath of Arab and Muslim nations, but regardless of the outcome, the issue and the war next door is feeding the “volatility” Egypt is experiencing less than two months before presidential elections.

Although the incumbent, general-turned-president Abdel Fattah El Sisi, is virtually certain of winning the vote, presidential elections in Egypt consistently give rise to uncomfortable questions about the direction in which the country is moving.

Egypt’s diplomacy, meanwhile, registered a stunning embarrassment that raised questions about the handling of the Gaza crisis.

Last weekend, it hosted a hurriedly convened international gathering in the hope it could get participants to call for a ceasefire and condemn Israel's bombardment of Gaza.

Egypt also wanted western participants among the 30-plus heads of state and top officials to match their outpouring of unconditional support for Israel in the immediate aftermath of the October 7 attacks with a condemnation of what Cairo sees as Israel’s collective punishment of Gaza.

But some representatives of western governments, led by the US, France, Germany and Britain, refused to go along. They wanted the meeting to call on Hamas to release the hostages and issue a condemnation of its October 7 attacks, a position Arab leaders could not adopt without risking a destabilising backlash from their people.

In the end, the meeting wrapped up without issuing a final communique.

Instead, the Egyptian presidency issued a statement in which it expressed its disappointment that the meeting had not lived up to Cairo’s expectations, including what it described as a new and equitable approach towards the Palestinian question.

“The meeting was not properly prepared for. It would not have failed if Egyptian negotiators were given the time and authority to hammer out a compromise with their western counterparts,” lamented a retired Egyptian ambassador.

Ominously, while the headlines have been dominated by the Gaza war, Egypt’s already troubled economy has been steadily sliding towards the abyss.

The Egyptian pound, which has lost some 50 per cent of its value since March 2022, is coming under increasing pressure, making another painful devaluation and another big hike in inflation inevitable.

The Egyptian pound was trading on the free market this week at 46 to the dollar, a whopping 15 pounds cheaper than the rate used by banks. It was traded at 40 to the dollar on the eve of the war.

Adding insult to injury, S&P Global Ratings last week downgraded Egypt further into negative territory, citing the slow progress it’s making on monetary and structural reforms.

The new grade, which will make it more difficult for the country to access capital markets and raise funding when it wants to borrow, adds to its woes, including a foreign currency crunch that has suppressed imports and hurt local industries.

At home, pro-democracy activists and government critics made the most of the government’s move to relax a decade-old ban on street protests. They took to the streets last Friday, not to declare their unwavering support for President El Sisi as authorities intended, but to chant slogans against the Egyptian leader and his government.

Significantly, an independent rally outside Cairo’s ancient Al Azhar Mosque – Sunni Islam’s foremost seat of learning – attracted tens of thousands. That was many more than any of the government-inspired demonstrations held across the nation’s 27 provinces that attracted crowds in the hundreds or low thousands.

Realising the demonstration went beyond government intentions – a chance to vent off popular anger at Israel and support Mr El Sisi’s handling of the war - police clashed with protesters, dispersing them by force and arresting 114, of whom 24 have already been released.

Beside political dissent, Mr El Sisi’s government needs to rein in anti-western and anti-Israel sentiments initially whipped up by the Gaza war and stoked by the government itself.

There have already been attacks on branches of the US fast food chain McDonald’s. There are also growing calls to boycott US and European goods but it’s not clear whether they are gaining traction.

Pro-government lawmakers are calling for Egypt to go to war against Israel and Sheikh Ali Gomaa, a former mufti, or the nation’s chief theologian, declared in parliament that Israel was an ageing entity facing imminent oblivion.

Egypt and Israel signed a landmark peace treaty in 1979.

One judge in the greater Cairo area declared from the bench of his courtroom that he was ready to give up his job to fight Israel.

“I declare that we are ready to take off these chic suits … and replace them with army fatigues and boots and be under your (Mr El Sisi’s) command or even the command of the most junior officer in the Egyptian army,” judge Ayman Salem said.

“We tell your excellency that we are with you as warriors,” he said, in a video clip widely shared online.