Egypt to go for Iraqi oil after Saudi drop

Egypt is set to receive one million barrels of petroleum per day from Iraq, in an agreement that may further strain ties with Saudi Arabia.

The Iraqi ambassador to Cairo, Habib al-Sadr, made the announcement on Wednesday. He said the agreement was signed two weeks ago and also includes plans for a direct pipeline between the two countries via Jordan. The amount may also increase moving forward, depending on payment terms.

The news comes two months after >Saudi Arabia officially cut oil shipments to Egypt, a move that was seen as retaliation against several geopolitical decisions made by the Egyptian government. Egypt's shift to Iraq – a regional ally of Iran – will not ease tensions between the two countries.

Here's a closer look at what's going on.

Saudi Arabia's King Salman >visited Egypt in April 2016, and agreed to send 700,000 tons of refined oil products per month for five years under a $23 billion aid deal.

When President Abdel Fattah al-Sisi took power in Egypt, Saudi Arabia and other Gulf nations pumped billions of dollars of aid into the country's struggling economy. But, as the economy continued to worsen and Sisi remained reluctant to support the foreign policy decisions of the Gulf, tensions rose.

In October, Saudi oil stopped coming. Later, in November, Egypt's Oil Ministry revealed that the kingdom had said petroleum shipments would cease "until further notice."

As part of the aid deal with Saudi Arabia, >Egypt agreed to hand over two Red Sea islands, Tiran and Sanafir. Saudi Arabia would then build a causeway between the kingdom and Egypt via Tiran, which would have likely benefited Egypt financially.

Regardless, the decision drew significant criticism within Egypt.

Control of the islands has shifted several times over the past century. Some say they had always belonged to Saudi Arabia, while others claim they are Egyptian. Both sides say they have legal documents and agreements to prove ownership. 

Court rulings made after the agreement say that the Egyptian government cannot hand the islands over to Saudi Arabia, but Sisi's administration has tried to move forward with the decision. In the meantime, as the fate of Tiran and Sanafir remains unclear, Saudi Arabia has lost patience.

Last year, Egypt supported a UN Security Council resolution on Syria that was strongly opposed by Saudi Arabia. While Saudi Arabia has maintained support for rebel groups fighting against the Iranian and Russian-backed Syrian President Bashar al-Assad, Egypt has pushed for a political solution that could likely see Assad hold onto power. 

Reports have also surfaced that Egypt may have sent military leaders to support the Syrian president. 

In Yemen, where Saudi Arabia is leading a coalition fighting against Houthi rebels (which are allied with Iran), Egypt has remained unwilling to join the conflict. 

These two disagreements have drawn a wedge between the two governments, particularly as Saudi Arabia becomes less confident in Egyptian President Abdel Fattah al-Sisi's ability to address his country's economic woes.

In November, a source close to Egypt's Oil Minister Tarek El Molla said that the minister would visit Iran – Saudi Arabia's main regional rival – to make a new oil deal, according to Reuters. But, as the news became public, Molla denied plans to visit Tehran. An Iranian oil official also denied the reports.

Two security sources and the source in Molla's delegation told Reuters that the minister had been scheduled to visit Iran, but had delayed the visit after the news became public. Iran and Egypt have had a strained relationship since the 1970s, meaning any oil deal would be a dramatic shift in policy between the two nations.

As it builds stronger ties with Iraq, Egypt already appears to be looking for new geopolitical alliances in the region.