Egypt is finding it increasingly difficult to import fuel as foreign banks and traders pull the plug on credit and charge high premiums due to concerns over its financial and political stability, trading and banking sources said.
Sporadic international loans have so far helped, and the country requested up to $4.8 bln from the IMF on Wednesday, but without such ad-hoc interventions, Egypt could quickly end up like debt-stricken Greece, dependent on a narrow pool of traders charging richly for supplies.
That could put a dangerous strain on Egypt's finances, which are already under pressure from high fuel subsidies it can ill afford to maintain but dare not cut in the precarious first months of new Islamist President Mohamed Mursi's tenure.
Since the election of Mursi in June this year following the overthrow of Hosni Mubarak in 2011, the number of suppliers has shrunk as oil traders are struggling to secure letters of credit from banks.
"As soon as they changed the president, banks raised the costs of letters of credit involving EGPC," one trader involved in supplying Egypt said, referring to Egyptian General Petroleum Corporation.
Mursi took the world aback when he dismissed top generals earlier this month, raising fears that the army, from which all Egypt's presidents had come for six decades after ousting the monarchy, might retaliate, though they have so far raised no challenge.
In the strongest evidence to date of rising fuel import difficulties, traders said Egypt had to cancel a tender to buy crude earlier this month after receiving no bids, and also had to scrap parts of a gasoline import tender because the prices on offer were too high.
"The costs that banks apply to any transaction involving EGPC are now double that of a normal transaction," another trader said. Some tenders have been relaunched with new terms.
An official at EGPC confirmed that some tenders had been delayed for a few days but declined to discuss reasons and details.
Egypt has already been struggling to maintain its massive oil subsidies since the revolution last year, as oil prices soared. The subsidies ballooned by 40% to almost $16 billion for the year ended June 30, about a fifth of its entire budget.
Egypt's economy grew 2% in the 2011/12 financial year, down from 5% or more in previous years, as the revolution frightened away tourists and foreign investors and sparked a wave of strikes.
Cutting fuel subsidies would be a hard policy to swallow for Egyptians expecting a higher quality of life since the end of the authoritarian Mubarak's 30-year reign.
Major trading houses Vitol and Glencore remain consistent diesel suppliers because of their deep pockets and their willingness to take risk.
"They use their own cash and they don't need credit lines from banks to finance their cargoes. So this could be one of the ways to exist," said one trader.
The development mirrors the situation in Greece, which also survives on oil from the same traders.
While the banks are still financing Egypt, rules are becoming more stringent.
Though EGPC still gets letters of credit from banks, the trader needs to have access to confirmation lines with a first class European bank.
"These are very limited now unless you are taking the Egyptian risk on your own shoulders," one trader said.
"The complication comes from some offshore banks when they open letters of credit and they reduce the credit period from the usual seven days to three days, and in some cases against cash," said a source from a Cairo-based global bank.
Traders noted that recent influxes of cash into Egypt have eased some worries.
Saudi-based Islamic Development Bank (IDB) provided $1 billion to finance energy and food imports in July, while Qatar lent $2 billion last week.
