US getting tough on Egypt's army? Don't bet on it
For reasons international and domestic, the United States is unlikely to make significant cuts in assistance to Egypt, despite calls from Congress to do so and a Cabinet-level meeting this week about the country.
About 1,000 civilians have been killed in Egypt in the last week, most of them backers of ousted Islamist President Mohammed Morsi who faced off in the streets against the Egyptian army and other security forces.
Amid those battles, voices from both sides of the U.S. political aisle have attacked the Obama administration for keeping open a $1.5 billion stream of annual aid to Egypt, the vast majority of which goes to its military.
"We urge the Obama Administration to suspend U.S. assistance to Egypt and make clear to the current leadership of the country what steps we believe are necessary to halt Egypt's descent into civil conflict," GOP Sens. John McCain of Arizona and Lindsey Graham of South Carolina said in a statement late last week, after bloody fighting began on the streets of Cairo and elsewhere.
Aid benefits U.S. arms manufacturers
But for a variety of reasons, any penalties the U.S. foists upon Egypt's military are likely to be cosmetic at best—and in the end, may prove entirely meaningless anyway, several Middle East-watchers told CNBC.
"The $1.3 billion that goes to the Egyptian army doesn't really go to the Egyptian army. It goes to an account that stays in the U.S. for the Egyptian army to buy U.S. hardware," said Farouk El-Baz, an Egypt-born scientist and administrator at Boston University who was an adviser to the late President Anwar Sadat.
Egypt is "totally dependent on U.S.-made military hardware," El-Baz said, and has been since 1979, when what amounts to a U.S. monopoly on arms sales to Egypt was written into the Camp David Accords. Prior to that agreement establishing peace with Israel, Egypt's military had been a Soviet client.
"The aid is recycled within the U.S.," said Mohammed Akacem, a professor of economics at the Metropolitan State University of Denver. Taxpayers give the money to the IRS, which disburses it to the Pentagon, which spends it with U.S. defense contractors.
"It's what we used to call 'tied aid' back in the '70s and '80s," said Akacem, referring to an aid agreement that stipulates that the recipient country must spend its aid money within the donating country.
General Dynamics declined to comment on the aid agreement. A company spokesman confirmed that General Dynamics is under contract to provide "tank kits" to Egypt, which assembles the heavy armor vehicles within its own borders.
In a statement, Lockheed said: "At this time, we do not have any details to offer. It's inappropriate for us to speculate on any potential contract changes."
At least seven other publicly traded U.S. companies have been awarded defense contracts with Egypt since 2009, according to documents from Defense Department, though it's possible that some of those agreements have been put on hold since the beginning of the Arab Spring.
The Israel issue
But it's not just a commercial relationship that's at risk between the United States and Egypt. Because the arms agreement is part of the Camp David Accords, disrupting it would amount to a partial "unraveling" of a landmark agreement that other Middle Eastern countries—especially Israel—want to see left intact.
"Israel is up in arms about cutting the aid, because if they cut that part of the accords, then what else may unravel from the accords?" El-Baz said.
As a general rule, Israel does not comment publicly on the internal affairs of Arab states, but the stability in the Middle East, especially in Egypt, is of strategic importance to the Jewish state.
And historically, even going back to the pre-colonial era, Egyptian stability has sprung from one source more than any other: Egypt's military.
Close ties of Egyptian, U.S. military
And that military has a close relationship with America's own armed forces. Since Camp David, U.S. defense planners have enjoyed great leeway with how they use American military aircraft and surface vessels in and around Egypt. In a region as volatile as the Middle East, the Defense Department is unlikely to want to see that cozy relationship disrupted by an aid ban.
(See more: Scenes from the turmoil in Egypt)
"The bottom line is that the Egyptians do us a tremendous favor—and they don't have to, either—doing things like how we get to go to the front of the line through the Suez Canal," said Jonathan Adelman, referring to U.S. Navy vessels transiting the waterway. Adelman was a part-time adviser to former Secretary of State Condoleezza Rice and now teaches at the Josef Korbel School of International Studies at the University of Denver.
"If they really wanted to be really nasty, they could just stop allowing U.S. warships through. And the Egyptians have been very forthcoming, that we have an ability to overfly Egypt [with military aircraft] and to land there," Adelman said.
Egypt and the United States also share "multitudes of classified security arrangements" that date to Camp David, said Pete Moore, an editorial board member of the Middle East Research and Information Project and political science professor at Case Western Reserve University. Those links, which include the sharing of intelligence and technology, have increased and become more important to the United States since the Sept. 11, 2001, attacks.
Moore added that aid disruptions from the U.S. have so far proven only symbolic and are likely to stay that way. A shipment of 20 F-16s that was delayed—at least in part—after street violence began in Egypt is largely irrelevant given that Egypt already operates roughly 240 American-built F-16s.
All for nothing anyway?
Even if there were to be a cut in U.S. military aid, it may prove irrelevant anyway, at least in the short term. A group of Gulf states, led by Saudi Arabia, pledged $12 billion in aid to Egypt should the United States withdraw its support. Like the Israelis, the Saudis—another U.S. ally—want to see stability in the region and are wary of the democratically elected Muslim Brotherhood party of Morsi.
"Concerning those who announced stopping their assistance to Egypt or threatening to stop them, the Arab and Islamic nation is rich with its people and capabilities and will provide a helping hand to Egypt," Prince Saud al-Faisal, the Saudi foreign minister, said Monday, according to the official Saudi Press Agency.
Some doubt the Saudis' willingness to follow through on any promised aid, but other Middle East-watchers say most oil-rich Gulf states would not hesitate to help prop up a military-led government in Egypt.
"That $12 billion changed the game, at least in the near term," said the University of Denver's Akacem. "Right now, the United States' decision is irrelevant. Whatever the U.S. does, Egypt has a lifeline. And on top of that we have Israel siding with Egypt."