Egypt Violence Subsides as Investors Eye New Liberal Faces

The violence has largely subsided in Egypt seven days after more than 90 people were killed in clashes between the military and supporters of the Muslim Brotherhood and deposed president Mohamed Morsi.

The military and interim president are moving swiftly to set up an interim government of liberal faces. Investors are getting excited, and the US has rushed in to reopen its embassy in Cairo, though it's been snubbed by the Islamists and the liberal protest movement most commonly associated with Mohamed ElBaradei, former chief of the UN's nuclear watchdog agency.

But this snub means much less than it appears to on the surface. ElBaradei is not as powerful a symbol as the media would have one think, and it is only his stint at the International Atomic Energy Agency (IAEA) that anyone remembers.

The military-the benefactor of billions in aid from the US-and the interim president, Aldy Mansour, welcomed the US envoy, Deputy Secretary of State William Burns, on Monday.

Related article: Egypt Better Prepared for Future after Power Change

Meanwhile, hundreds of thousands of Morsi supporters continue to protest, staging a sit-in in Cairo's Nasr City area, which has also been turned into a safe haven for those Muslim Brotherhood leaders for whom the military has issued arrest warrants.

The military has set up barbed wire  between the Nasr City square and the Republican Guard barracks, and positioned two rows of armored personnel carriers along the way as much as if to say that there will be no repeat of last week's clashes.

An interim prime minister-liberal economist Hazem el-Beblawi--was appointed last week, and we can expect a list of liberals and technocrats to fill other key interim positions. Other interim appointments include liberal economist Ahmed Galal as finance minister; former ambassador to the US Nabil Fahmy as foreign minister; and former UN nuclear watchdog chief Mohamed ElBaradei as vice-president. 

The full interim government should be sworn in within a week, governing under a temporary constitution until parliamentary elections can be held. However, parliamentary elections cannot be held without an amended constitution that gets public approval via a referendum. Interim officials are hopeful that a constitutional referendum could be held within four months and parliamentary elections within six months.

The military has indicated that it may be preparing to try Morsi and other Muslim Brotherhood members, yet indicated that Muslim Brotherhood members could be offered ministerial posts in a new government.

The Muslim Brotherhood is facing a tough choice here. It can engage with the new powers in Egypt for inclusion, but this would mean sacrificing Morsi. Sacrificing Morsi would likely lead to serious fracturing of the Muslim Brotherhood, which would lose the power of its numbers.  It is now clear that Morsi has no chance of being re-instated. The military has made its move and any attempt by the Brotherhood to regain power would be met with the full power of the military's might. It would be brutal.

So what we have now is another new Egypt, propped up by the military and a handful of liberals that Western investors are already eyeing with extreme optimism, and some very powerful background forces, including the US, Russia and Saudi Arabia.

Related article: Market Celebrates Egypt's Coup, But It's Not Over Yet

For its part, Washington has signaled it will supply F-16 fighter aircraft to the Egyptian military, while Saudi Arabia and the United Arab Emirates (UAE) announced immediately after the coup that they would release $8 billion in aid to the country.

Washington will go ahead with a supply of F-16 fighters to the Egyptian military, which is why the Obama administration has refrained from referring to the military's takeover as a 'coup'

There is a flurry of activity going on between Egypt's "new" Finance Ministry and the Gulf states of Saudi Arabia, the UAE and Kuwait. Financially, Saudi Arabia is the only Gulf state that has the capability to prop Egypt up out of debt and ensure a non-violent transition following the military coup. Saudi Arabia has around $630 billion in cash reserves, and Egypt needs about $20 billion a year to fill in the gaps.

We expect the investment response to be swift.

By. Charles Kennedy of Oilprice.com