US reviews Egypt aid as Arab nations pour $12 billion into post-Morsi regime

As debate rages over economic aid to Egypt, shoppers flock to a Cairo market on the eve of Ramadan, the sacred holy month for Muslims. Spencer Platt / Getty Images

U.S. aid to Egypt was formally put under review Thursday in the wake of last week’s military-backed power shift as Arab nations rushed to pledge $12 billion to the country's new government.

"Given the events of last week, the president has directed relevant departments and agencies to review our assistance to the government of Egypt," the Pentagon said in a statement.

It marks a policy shift by the Obama administration, which said on Monday that suspending the annual $1.5 billion support to Cairo “would not be in the best interests” of the U.S.

However, the slated U.S. delivery of four F-16 fighter jets to Egypt in the coming weeks was still "scheduled as planned," senior U.S. officials said. 

Obama has been under pressure from lawmakers, including Sen. John McCain, R-Ariz., who say the U.S. should not be supporting what is regarded by supporters of ousted President Mohammed Morsi – and countries including Turkey - as a coup.

U.S. law requires that aid be cut off to a country that undergoes a military coup, but Western leaders have stopped short of declaring the July 3 transition a coup.

State Department spokeswoman Jen Psaki said the arrests of Muslim Brotherhood members in recent days contradicted assurances given to U.S. officials by the Egyptian military and members of the interim government. 

"The arrests we've seen, of course, over the past several days targeting specific groups are not in line with the national reconciliation that the interim government and military say they are pursuing," she said. "If politicized arrests and detentions continue, it is hard to see how Egypt will move beyond this crisis." 

Psaki said the U.S policy makers would be looking closely to see if the arrests continue as they review decisions on aid to Egypt. 

But while Washington debated whether to back Egypt’s new military-appointed civilian leadership, Egypt’s neighbors have wasted no time in pledging colossal financial support.

Kuwait promised Cairo $4 billion on Wednesday, according to state news agency KUNA, less than 24 hours after Saudi Arabia and the United Arab Emirates pledged a combined $8 billion.

Shadi Hamid, director of research at the Brookings Doha Center and a leading expert on Egypt, said the contrasting responses to the removal of Muslim Brotherhood-backed Morsi indicated that the U.S. was “not very engaged” in the Middle East.

“Gulf [of Arabia] states have seen political leadership vacuum and they have stepped in,” he said. “They have seen that the Obama administration does not seem to back up its own rhetoric – for example, when it comes to the ‘red line’ in Syria over chemical weapons – and they have acted. The U.S. doesn’t seem to be interested in using its aid for leverage.

“Given the amount of money that has come to Egypt in a matter of days, it raises the question of how much the U.S. matters to the new government in any case.

“The new leader has not rushed to seek endorsement from the U.S. Ironically, the U.S. might well have had more influence with the Muslim Brotherhood government, since Morsi in some ways over-compensated for his background by emphasizing co-operation with the U.S.”

Regardless of who runs Egypt, the country’s economy is in desperate need of support, and Secretary of State John Kerry said in April that it was “paramount, essential, urgent” that Cairo should reach a deal with the International Monetary Fund on a rescue package.

President Barack Obama meets with members of his national security team to discuss the removal of Egypt's government in the Situation Room of the White House, in this photo taken July 3 - the day of the power shift. Pete Souza / The White House via AP

The country has less than two months' supply of imported wheat left in its stocks, Morsi's minister of supplies told Reuters on Thursday - revealing a shortage more acute than previously disclosed. 

However, the New York Times reported that gas lines in Cairo have disappeared and power cuts stopped – an “apparently miraculous” improvement in daily life that suggests Mubarak-era bureaucrats “intentionally or not” undermined Morsi’s efforts to restore economic stability.

Four U.S. lawmakers introduced legislation on Wednesday that would force more public disclosure about foreign aid programs, Reuters reported. Although foreign aid represents only about 1 percent of the federal government's annual budget, but can be the subject of fierce political debate.

Egypt is the second-largest recipient of USAID support, after Israel. Almost all of it comes in the form of military funding that is mandated to be spent with U.S. defense companies. In 2011, a Cornell economist estimated that U.S. aid made up one-third of Egypt’s broader military budget, the Washington Post noted.

Just two months ago, Kerry approved a further $1.3 billion.

The role of the U.S.-funded military in removing democratically elected Morsi from power creates a headache for the Obama administration, as it dances around the issue of whether to call the power shift a "coup."

Muslim Brotherhood calls for uprising after violence 1:27

John Bolton, a former U.S. ambassador and America Enterprise Institute scholar, said Thursday that suspending aid would be a mistake.

“Such cutbacks also would send exactly the wrong political message to the factions within Egypt, the Middle East more broadly, and America's friends and allies worldwide,” he wrote in the Wall Street Journal. “Congress should make a quick, technical statutory fix that allows U.S. aid to continue despite the coup.”

Sen. McCain acknowledged the decision would be a “tough call,” but added: “The fact is, the United States should not be supporting this coup.”

Navy ships moving closer

Thursday, in what appeared to be a precautionary move after Morsi's overthrow, Marine Corps Comm. Gen. James Amos said two U.S. Navy ships patrolling in the Middle East had moved closer to the coast of Egypt in recent days.

Amos stressed that the USS San Antonio, an amphibious transport dock and the USS Kearsarge, an amphibious assault ship, had inched up on Egypt from the Red Sea as a precaution.

“Egypt is a crisis right now, when that happens, what we owe to the senior leadership of our nation are some options,” Amos said during a presentation at the Center for Strategic and International Studies think tank.

“Why? Because we don’t know what’s going to happen,” he said. “If these were your relatives, if these were your family members, you might want to have some help to get them out if that was required.”

Reuters contributed to this report.