(Bloomberg) -- Saudi Arabian Oil Co. halted shipments of oil products to Egypt indefinitely, Egyptian Oil Minister Tarek El-Molla said, forcing the Arab world's most populous nation to buy fuels on world markets at higher cost.
The state producer known as Saudi Aramco informed the Egyptian General Petroleum Corp. in early October that it would suspend supplies of refined oil products, leaving Egypt little choice but to resort to tenders for meeting local demand. It wasn't clear at the time if the freeze was only for October. Aramco had agreed earlier this year to provide Egypt with 700,000 metric tons of refined products each month for five years in an arrangement valued at about $23 billion.
Egypt, which relies on imports to meet its energy needs, faces higher costs for gasoline and other oil products after the government decided on Thursday to allow its currency to trade freely as a step toward stabilizing an economy weakened by a dollar shortage. El-Molla, the Egyptian oil minister, confirmed the indefinite suspension of Saudi fuel supplies on Sunday during a conference in Abu Dhabi, without giving reasons.
‘Difficult Position'
“This leaves Egypt in a very difficult position -- the pound flotation means the government will have to pay much more for its imports, and now it has to go to the international markets to secure its gasoil and diesel supplies on much more difficult payment terms,” London-based Ehsan Ul-Haq, an oil-market analyst at KBC Energy Economics, said in a phone interview. “I don't think Egypt will be able to get similar conditions from any other countries in the region.''
State-owned EGPC has agreed to buy eight gasoil cargoes for November delivery to Alexandria, at an average price of about $12 a ton over regional benchmarks, according to three traders with knowledge of the matter. Egypt also signed a memorandum of understanding to import crude from the State Oil Co. of the Azerbaijan Republic, known as Socar, to supply its refineries, the oil ministry said Thursday. The deal came after Egypt reached a deal with Iraq on Oct. 31 to form joint ventures to produce oil and natural gas.
Iran's Mehr news agency reported that El-Molla would travel to Iran, Saudi Arabia's main regional rival, to meet with Oil Minister Bijan Namdar Zanganeh in Tehran on Monday. El-Molla, speaking to reporters in Abu Dhabi on Monday, denied that he was visiting Iran. Two Iranian oil ministry officials, who asked not to be identified because they aren't authorized to speak to the media, denied that El-Molla was visiting Tehran or meeting with Zanganeh.
Raising Prices
Immediately after floating its currency, the government raised prices for subsidized fuels, with 80-octane gasoline rising almost 47 percent to 2.35 pounds (15 cents) per liter. The steps will help Egypt secure a $12 billion IMF loan seen as crucial to attracting investments and ending the dollar shortage that has crippled business activity.
The government has reason to fear social unrest, which has led to the ouster of two presidents over the past five years. Inflation soared to the highest level since 2009 in recent months, while a recent sugar shortage has exacerbated tensions. President Abdel-Fattah El-Sisi said Egyptians must make sacrifices to revive the economy and shrink one of the Middle East's biggest budget deficits.
To contact the reporters on this story: Mahmoud Habboush in Abu Dhabi at mhabboush@bloomberg.net, Salma El Wardany in Cairo at selwardany@bloomberg.net. To contact the editors responsible for this story: Nayla Razzouk at nrazzouk2@bloomberg.net, Bruce Stanley
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