All eyes are on Egypt's border as the Israel-Hamas war worsens : The Indicator from Planet Money One of the most crucial players in the war unfolding in the Middle East is Egypt, which neighbors Gaza and is facing pressure from the United States and its allies to open up its borders to refugees.

Today, we explain how Egypt's rocky economy presents both a headwind and an opportunity for humanitarian talks in the Middle East and why this situation is testing the United States' economic and political influence.

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What could convince Egypt to take in Gaza's refugees?

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SYLVIE DOUGLIS, BYLINE: NPR.

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DARIAN WOODS, HOST:

During President Biden's trip to the Middle East this week, he spoke to Egyptian President Abdel Fattah El-Sisi. The two leaders agreed to open Egypt's border to aid trucks that were waiting to head into Gaza. Now, this is only a taster of what some in the West want, which is for Egypt to open that border for people coming out of Gaza.

WAILIN WONG, HOST:

As of this taping on Thursday, Egypt has become one of the most crucial players in this war. As Israel focuses most of its attacks on northern Gaza, hundreds of thousands of Palestinians are escaping to the southern part of the territory. They're arriving to overcrowding, intermittent power and scarce water. And there's only one other country that's a possible option for any refugees that may want to flee Gaza over land - Egypt. But Egypt's border is closed.

WOODS: The Financial Times reported earlier this week that a senior Egyptian official told a European official, quote, "you want us to take a million people? Well, I'm going to send them to Europe. You care about human rights so much? Well, you take them."

WONG: So, given the stalemate, what diplomatic and economic tools does the U.S. have to open the border? This is THE INDICATOR FROM PLANET MONEY. I'm Wailin Wong.

WOODS: And I'm Darian Woods. Today on the show, how Egypt's flagging economy presents both a challenge and an opportunity for humanitarian relief in the Middle East and why this question is testing U.S. economic and political influence.

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WOODS: Egypt has a long and not always easy history with the Palestinian people.

STEVEN COOK: It's complicated. You have to understand that Egyptian nationalism and Palestinian nationalism are actually intertwined in a number of quite interesting ways.

WONG: Steven Cook is a senior fellow for Middle East Studies at the Council on Foreign Relations. He says that Egypt was the occupying power in the Gaza Strip until the Arab-Israeli war in 1967 when Israel took over the territory. And in 2006, after Hamas was elected to power, Egypt has had a relationship with Hamas, but a grudging one.

COOK: The Egyptians see Hamas as a security threat, as a problem to be managed, and from time to time, their intelligence agents have to come in, use whatever means they can to force Hamas to de-escalate and mediate between Hamas and the Israeli government.

WOODS: So President Joe Biden has to be mindful of this uneasy relationship. He also has to factor in Egypt's economy.

COOK: Egypt is reeling from an economic crisis. Inflation is at historic levels. The country is the second-most debt-ridden country in the world, the first being Ukraine, which is fighting a war for survival.

WONG: Egypt is the second-most likely emerging economy to face some kind of government debt crisis, according to analysis by Bloomberg.

COOK: There is food insecurity and generally a immiseration of the Egyptian population, which was quite poor to begin with.

WOODS: How did this happen? If it's not fighting a war, why is it in such a bad situation?

COOK: Egyptian President Abdel Fattah El-Sisi, who came to power in a coup d'etat in the summer of 2013, has gone on a debt-fueled spending spree. He is in the process of building a new capital, the first phase of which isn't even complete but will cost $58 billion. He has built a new Suez Canal bypass, which the Egyptians insisted would be paid for by the increase in Suez Canal traffic, which did not materialize, and a variety of other mega-projects. And Egyptians are now literally paying the price for this economic mismanagement.

WOODS: Adding to the immediate pressure on Egypt's government is that the country is already hosting a lot of other refugees escaping the Sudanese civil war.

COOK: Three-hundred-seventeen thousand Sudanese have fled the conflict there, and they are in Egypt.

WOODS: Wow - about the size of a small city.

COOK: Exactly. Although in Egypt, it's like, you know, one block in part of Cairo.

WOODS: Right.

COOK: But still, it's a huge number of people.

WONG: So given Egypt's headwinds, what are the kinds of diplomatic options the U.S. and its partners have to try to convince Egypt to allow passage for Gazan refugees?

WOODS: Steven says he first thinks about what Egypt needs right now.

COOK: What it needs most of all its debt relief. There is precedent for it. In 1991, when then-Egyptian President Hosni Mubarak deployed 35,000 Egyptian soldiers and officers to Saudi Arabia to take part in Operation Desert Shield/Desert Storm.

WONG: In exchange for this military support in the Gulf War, the U.S. convinced a bunch of countries to forgive half of the Egyptian government's debt.

WOODS: But Steven warns that the current situation is a lot more complex.

COOK: Perhaps there's some deal here. But, you know, the situations are fundamentally different. We are talking about the potential for hundreds of thousands of Palestinians making their way into Egyptian territory.

WONG: The Egyptian president is currently happy for aid to go into Gaza but doesn't want people coming out of Gaza. An open passage might not be popular among some Egyptians because facilitating the exit of people out of Gaza might be seen to undermine the Palestinian movement. Also, Steven says the Egyptian president is worried about extremists living among the refugees and causing security concerns for years to come.

COOK: Up until this point, the Egyptians have remained steadfast in their opposition to throwing open the doors to Palestinians.

WOODS: All right, so debt relief faces the massive obstacle of resistance from Egypt to refugees. But there is another problem with U.S.-led debt relief. Cerian Richmond Jones is an international economics correspondent for The Economist newspaper.

CERIAN RICHMOND JONES: The problem with that is that debt relief can't come from the U.S. because the U.S. actually hasn't lent Egypt that much in the past 10 years. Almost none of Egypt's outstanding debt belongs to the U.S.

WOODS: Instead, the Egyptian government owes money to what Cerian says is a hodgepodge of private lenders, the International Monetary Fund, Gulf states like the United Arab Emirates and a little to China.

WONG: So if direct debt relief is off the table for the U.S., perhaps it could influence the IMF. The U.S. could swing its heft for the IMF to offer debt service relief or lend more. Cerian, though, is skeptical that this is a major lever that can be pulled.

JONES: Ultimately, the IMF isn't going to want to look political in this way.

WOODS: So if debt relief options end up infeasible, there's also the possibility that the U.S. could just offer straight cash to Egypt, but...

JONES: Kind of unclear what the precedent for that would be - it would definitely get pushback in Washington, where there's a huge congressional disapproval at the moment of a lot of international financial multilateral action.

WONG: Finally, there's trade. The U.S. and European countries could offer subsidized wheat, which is a major issue for Egypt because it imports its wheat and offers cheap bread to its citizens. But that's unlikely to be a deal-maker on its own. And so without that direct debt to Egypt, it leaves the U.S. with few options for diplomatic pressure.

JONES: It's really interesting to see because I think it's one of the first times where the U.S. is really feeling that decreased role in the international financial world. It's decreased its bilateral lending quite a lot. Lending is diplomacy. It's financial diplomacy. It's about increasing investment ties. It's about these gestures of friendship and kind of extending soft power into the world.

WOODS: The Egyptian president has this week reiterated his opposition to hosting Palestinian refugees, and he'll be hosting an international summit on the war this weekend. We asked Steven Cook for what he'll be watching out for.

COOK: What everybody else will be - what enticements, what inducements can be brought to bear on the Egyptians to allow them to accept Palestinians onto their territory, and whether the Egyptians will be worn down by both the images of Palestinians suffering in the Gaza Strip and public opinion in Egypt, which clearly is horrified by this and wants to do something about it, and the constraints that Sisi feels in terms of domestic security.

WONG: Whether an arrangement can be made will likely depend on whether negotiations can be backed up by money.

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WOODS: This episode was produced by Corey Bridges with engineering by Josephine Nyounai. It was fact-checked by Sierra Juarez and edited by Dave Blanchard. Kate Concannon is our editor, and THE INDICATOR is a production of NPR.

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