Chaos in Egypt – Could a Civil War Break Out?

As most of our readers know, we have followed the events in Egypt off and on ever since the so-called 'Arab Spring' led to the deposition of former strongman Hosni Mubarak. Here is a list of the most recent articles, which have followed the brief stint of Mohammed Morsi as president. Initially we pointed out that the 'new boss was the same as the old one'. He had simply adopted the state's apparatus of coercion for his own purposes. We then pointed out that he had failed in the most important task of his presidency: namely that of improving the economy. It is very difficult to do so, given the vested interests in Egypt. It is for instance estimated, that the army controls roughly 40% of the economy. Thus any reform attempt that may result in reducing the army's influence on economic life is probably doomed from the outset. Our friend Raj reports regularly from Egypt, and he too stated very early on that unless Morsi managed to right the economy, he was going to be doomed.

Let us not forget, it was probably mainly a surge in food prices that ultimately led to the downfall of Mubarak. Below is a list of previous articles we wrote on the evolving situation, and we want readers who have missed them direct specifically to the one entitled 'How the Arab Winter Could Become Spring', where we presented an argument forwarded by Fraser Nelson that the central problem of the Arab world in general and Egypt in particular is not the 'lack of democracy', but the lack of freedom, especially economic freedom. What Egypt needs more urgently than anything else is free market capitalism. Here is the aforementioned list of previous articles charting events up to the recent crackdown:


'Egypt – From Spring to Winter in One Step'

'Arab Winter in Full Swing'

'More Turmoil in Egypt'

'How the Arab Winter Could Become Spring'


Of course, right now there is little chance of 'spring' springing up anytime soon. Rather, following the bloody confrontation between the army and the supporters of Mohammed Morsi – who, it must be pointed out once again, won the election fair and square and was deposed in a coup – one must fear that the chaos will worsen and could eventually morph into a civil war type situation. In  that case, we would expect the military to install a junta and attempt to rule the country under emergency regulations.


The supporters of the Muslim Brotherhood – which is actually a fairly moderate Islamist movement (although it has of course given birth to a radical offshoot) – are justifiably disappointed that their political aspirations have been so rudely thwarted. The Western world has shown them its most hypocritical side, by cynically supporting the coup that removed Morsi and by once again reacting in a ho-hum fashion to the latest bloodshed. Rest assured that the West, and first and foremost the US, has made a plethora of new enemies.

In the 'Egyptian street' people are convinced that Morsi was only deposed after the US secretly gave its placet to the coup, and very likely this interpretation is correct. After all, the Egyptian military relies heavily on US aid, therefore it probably wouldn't take such a step without first getting the nod from the puppet masters holding the purse strings.

Consequently, everything that has happened since then is likely attributed to  US interventionism by the average Egyptian – and what has happened since then is unfortunately a bloodbath. As Reuters reports, more than 600 people have been killed when the army moved against the Brotherhood's protest camps. Meanwhile, the army is already saying that it will continue killing people, regardless of Western protests (this is a strong sign that these protests were too feeble):


“Defying criticism from major Western allies, Egypt's army-backed government warned it would turn its guns on anyone who attacked the police or public institutions after protesters on Thursday torched a government building in Cairo.

At least 623 people died and thousands were wounded on Wednesday when police cleared out two protest camps in Cairo set up to denounce the military overthrow on July 3 of Egypt's first freely elected president, the Islamist leader Mohamed Mursi.

It was the third mass killing of Mursi supporters since his ousting. The assault left his Muslim Brotherhood in disarray, but they warned they would not retreat in their showdown with army commander General Abdel Fattah al-Sisi. "After the blows and arrests and killings that we are facing, emotions are too high to be guided by anyone," said Brotherhood spokesman Gehad El-Haddad.

Friday prayers have proved a fertile time for protests during more than two years of unrest across the Arab world, and the Muslim Brotherhood has called for "a Friday of Anger" in towns and villages across Egypt.

In a counter move, a loose liberal and leftist coalition, the National Salvation Front (NSF), called on Egyptians to protest on Friday against what it said was "obvious terrorism actions" conducted by Muslim Brotherhood.

Signaling his displeasure at the worst bloodshed in Egypt for generations, U.S. President Barack Obama said on Thursday normal cooperation with Cairo could not continue and announced the cancellation of military exercises with Egypt next month. "We deplore violence against civilians. We support universal rights essential to human dignity, including the right to peaceful protest," he said, taking a brief break from his holidays to deliver the sharp rebuke.


(emphasis added)

Postponing joint military exercises! That's going to show them! The rest is just the usual hot air of course. The Egyptian army's leadership is obviously unimpressed. Note the 'Friday of Anger' mentioned above, which by now has turned into a 'Day of Rage' and resulted in many more deaths already:


“Muslim Brotherhood protests plunged into violence across Egypt on Friday, with around 50 killed in Cairo alone on a "Day of Rage" called by Islamist followers of ousted President Mohamed Mursi to denounce a police crackdown. Automatic gunfire echoed across Cairo and black smoke billowed from the capital's huge Ramses Square, a military helicopter hovering low overhead looking down on the chaos.

A Reuters witness saw the bodies of 27 people, apparently hit by gunfire and birdshot, wrapped in white sheets in a mosque. A Reuters photographer said security forces opened fire from numerous directions when a police station was attacked. At least 20 people died in clashes elsewhere in Egypt.

The violence followed Wednesday's assault by security forces on two Brotherhood sit-ins in Cairo that left hundreds dead, as the military-backed government tried to end weeks of turbulence that has pushed the Arab world's most populous state to the brink of disaster. Western governments urged restraint and Germany cautioned the new government that it was reviewing its ties. By contrast, Saudi Arabia's King Abdullah said his country stood with Egypt in its battle against "terrorism".

The army deployed armored vehicles on major roads around the capital and the Interior Ministry said police would use live ammunition against anyone threatening public buildings. "Sooner or later I will die. Better to die for my rights than in my bed. Guns don't scare us anymore," said Sara Ahmed, 28, a business manager who joined the demonstrators in Cairo. "It's not about the Brotherhood, it's about human rights," said Ahmed, one of the few women in the crowd not wearing a headscarf, a sign of piety for Muslim women.

Anger on the streets was directed at army commander General Abdel Fattah al-Sisi, who moved against Mursi last month after massive street rallies against the his administration that had been dogged by accusations of incompetence and partisanship. "The people want the butcher executed," said Mustafa Ibrahim, 37, referring to Sisi, as he marched with a crowd of several thousand on downtown Cairo under blazing summer sun.”


(emphasis added)

Mubarak's reign has shown that it is in principle possible to oppress the population of Egypt for a long time. The army is no doubt counting on its superior firepower to enable it to do the same thing again. It has already arrested the most important leaders of the Brotherhood, thereby 'decapitating' its main enemy. However, as noted above, the main problem is actually not that the Brotherhood insists on the return of the legitimately elected president Morsi, the main problem is that many people have nothing left to lose due to the miserable economic situation. Moreover, like many other Arab states, Egypt's demographics are such that there is a very large contingent of young people. Young people are by nature less likely to shirk confrontation, they are more hot-headed and less risk-averse than older people. Many are also jobless and see no future for themselves in today's Egypt. It may therefore not be so easy to suppress the revolt and the probability of a civil war breaking out cannot be dismissed out of hand.


Financial Market Data

The Cairo Stock Exchange has been closed following the crackdown, but the Egyptian currency continues to trade. Interesting,y the Egyptian pound's collapse has not worsened any further, in spite of the bloodbath and the growing uncertainty. Below we show the pound (EGP) relative to the US dollar over several time frames: a weekly chart which shows the acceleration of the currency's collapse in 2013, a daily chart that shows how surprisingly little movement there has been in recent days, and a long term 10 year chart to put the pound's recent moves into perspective.



Egyptian pound, weekly

EGP, weekly – the currency has suffered an accelerated collapse in 2013, but the crackdown has only resulted in very little short term volatility so far – click to enlarge.



Egyptian pound, daily

EGP daily, zooming in on the period circled in the weekly chart above: there was far more volatility in July when Morsi was deposed and it became clear that a bigger confrontation with the Brotherhood loomed – click to enlarge.



EGP, 10 yearsEGP over the past ten years, with the end of 2012 marked. The currency had already been weak, but in 2013, a free-fall commenced – click to enlarge.



As noted above, the Cairo Stock Exchange is currently closed, but we can take a look at the days leading up to the crackdown. Interestingly, stocks have not been as weak ahead of the crackdown as one might have thought. On the contrary, the stock market seems to count firmly on the army winning the fight with the Brotherhood and seems to expect that the latter will thereafter once again no longer play a role in politics.



EGX-30,dailyA daily chart of the EXG 30 – in the days leading up to the crackdown, the index actually rose quite strongly. Of course it is at this point unknowable what is going to happen once the exchange reopens – click to enlarge.



EGX-30, long termA long term chat of the EXG 30 – curiously, the index has not broken its 2009 crash low, in spite of all the turmoil in Egypt since then. We suspect that this is likely a side effect of the collapse in the Egyptian pound: people are presumably buying stocks to protect themselves against the currency's massive devaluation. So far this maneuver has only been moderately successful, although the run-up from the early 2012 low to the recent interim high was actually quite big – the chart's scale masks this a bit – click to enlarge.



We will keep an eye on what happens once the exchange is reopened. Much will depend on the actual situation on the ground at the time, which is of course rather fluid at present.



Charts by:,, BigCharts




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