Egypt's Muslim Brotherhood signaled its intent on Sunday to push the country into economic chaos. With liquid foreign exchange reserves barely equal to two months' imports and panic spreading through the Egyptian economy, the Brotherhood's presidential candidate Khairat al-Shater warned that it would block a US$3 billion emergency loan from the International Monetary Fund (IMF) unless the military government ceded power.

"We told them [the government], you have two choices. Either postpone this issue of borrowing and come up with any other way of dealing with it without our approval, or speed up the formation of a government," Khairat al-Shater said in a Reuters interview. [1]

The news service added that al-Shater "said he realized the country's finances were precarious and a severe crunch could come by early to mid-May as the end of the fiscal year approached, but that this was the government's problem to resolve".

Last week, Egypt's central bank reported that total reserves had fallen to $15 billion, but - more importantly - liquid foreign exchange reserves had fallen to only $9 billion, equivalent to just two months' imports. Foreign exchange futures markets expect the Egyptian pound to lose half its value during the next year, and Egyptians have responded by hoarding diesel fuel, propane gas and other necessities.

With half of Egypt's population living on $2 a day or less, the expected devaluation would push a significant part of the population below minimum nutrition levels, and balloon the government's deficit as the cost of subsidizing imported necessities rose. Egypt imports half its caloric consumption.

The IMF loan was a stop gap to delay devaluation, but the Muslim Brotherhood's al-Shater made clear that Egypt's dominant political party would spike it. "It is not logical that I approve a loan that the transitional government would take for two or three months, then demand that I, as a permanent government, repay," Shater told Reuters." I have to agree to a loan, somebody else gets to spend it, then I have to pay it back? That is unjust."

As Egypt headed towards chaotic breakdown, Western observers asked how its economy might be stabilized. This appears to have been the wrong question to begin with, for the Muslim Brotherhood will not allow the West to stabilize Egypt's financial position. The right question is: who will benefit from the chaos?

At this writing, the Muslim Brotherhood appears to be the winner by default, for no other actor has the courage and cold blood to exploit the emerging crisis. America, by contrast, is locked into the defense of a deteriorating fixed position. And Egypt's military leaders are more concerned with feathering their nests in exile, like the Iranian generals in 1979.

The Brotherhood believes that widespread hunger will strengthen its political position, and is probably correct to believe this. As the central government's corrupt and rickety system of subsidies collapses, local Islamist organizations will take control of food distribution and establish a virtual dictatorship on the streets.

American analysts mistook the protestors of Tahrir Square for revolutionaries. The Muslim Brotherhood now reveals itself to be a revolutionary organization on the Leninist or Nazi model.

The Brotherhood's revolutionary program has been gestating for some time. As food and fuel shortages emerged in the first months of after the downfall of president Hosni Mubarak last year, Islamist organizations already began to fill the vacuum left by the breakdown of the old civil regime.

The Ministry of Solidarity and Social Justice began forming "revolutionary committees" to mete out street justice to bakeries, propane dealers and street vendors who "charge more than the price prescribed by law", the Federation of Egyptian Radio and Television reported on May 3, 2011. According to the ministry, "Thugs are in control of bread and butane prices" and "people's committees" are required to stop them.

The government already may have curtailed imports of fuel and other subsidized items, with fuel supplies down by 35% from normal levels, according to local UN observers. "It has been three months since a fuel shortage hit Egypt, and people's patience is wearing thin amid fears the crisis could disrupt the production of subsidized bread," the UN-sponsored news service IRIN reported from Cairo on April 2. "The government blames hoarding for the crisis," IRIN adds. "Thousands of cars queue outside petrol stations from early morning, while long queues form outside gas cylinder centers."

Whether the government has anticipated a devaluation by hoarding hard currency, or the public has anticipated a devaluation by hoarding products that are bought with hard currency, or both, the result is the same: Egypt is running out of money and faces a chaotic devaluation. Egypt's political actors appear to have moved past the question of avoiding the crisis, and are positioning themselves instead to exploit the crisis.

American policy seems entirely unprepared to deal with this scenario. America has paid out $75 billion in aid to the Egyptian military since the peace treaty with Israel in 1979, and continues to see the Supreme Council of the Armed Forces as the fulcrum of stability in Egyptian politics.

This is a bi-partisan stance. Senators John McCain (Republican-Arizona) and Lindsey Graham (Republican San Francisco) met with Egypt's Muslim Brotherhood leaders in Cairo in March, evidently in the hope of persuading the Brotherhood not to challenge the armed forces' control of the government.

McCain made clear that he wanted to maintain reduce "tensions" between the Islamists and the armed forces regime, as he said in a March 30 radio interview in Cairo:

The current tension between the military council and the Muslim Brotherhood may aggravate the situation in the country in the upcoming period during which the constitution will be drafted ... I'm deeply concerned about the possibility of an escalation of tensions and the occurrence of more confrontations and demonstrations [in Egypt]. However, the more important question is whether the Muslim Brotherhood will adopt a moderate approach, or if some of its extremist members will be directing the constitution-drafting process and the [presidential] elections. [2]

That is the default American position, but it appears to have become obsolete in the week since McCain and Graham went to Cairo. The Muslim Brotherhood, contrary to earlier promises, was not content to take over parliament, but also fielded its own presidential candidate, Khairat al-Shater, and al-Shater showed his hand on April 8.

As a revolutionary organization that rose under the influence of Nazi Germany's wartime foreign ministry, the Brotherhood has no qualms about exacerbating Egypt's economic misery if it furthers its agenda. Paul Berman's 2010 book The Flight of the Intellectuals summarized exhaustive academic research into wartime archives showing that the Brotherhood was shaped by Nazi ideology. Berman's report evoked outrage, but has stood up well to its critics. [3] The New Republic essay that formed the core of Berman's book is available. [4]

A Muslim Brotherhood consolidation of power on the back of devaluation and food shortages using techniques of the Bolsheviks in 1917 or the Nazis in 1933 seems the most likely outcome. There seems to be no plan to avert it, for the power of the military will run out along with the country's foreign exchange reserves.

The US backed away from a fight with the Egyptian regime over the arrest of American non-governmental organization (NGO) democracy activists, and pushed through a renewal of a $1.3 billion aid package.

But a Brotherhood coup in Cairo would have implications through the whole Arab world. As Issandr el-Armani wrote April 2 at The Arabist:

The US is still putting all of its eggs in the military's basket, as the recent waiver for aid to Egypt and the backroom deal over the NGO affair showed. Gulf states like the UAE [United Arab Emirates] are in full-blown anti-Muslim Brotherhood hysteria, reflecting a wider unease in Saudi Arabia, Kuwait and even Qatar about a Muslim Brotherhood-led Egypt. [5]

That is an important wrinkle, virtually ignored by the US foreign policy establishment. To the extent American analysts have examined the links between the Muslim Brotherhood and the Saudi royal family, they have concluded that "the Saudis gained newfound influence with the Muslim Brotherhood and its even more hard-line Salafis", as John R Bradley argued last October in Foreign Affairs. [6]

The Gulf monarchies have a reason to fear the Muslim Brotherhood: as opposed to the tribal monarchies of the Gulf, the Brotherhood rebottles Islamic radicalism in the form of a modern totalitarian revolutionary party. If Egypt starves, the cry will go up from Cairo: "Our brothers lack bread and the corrupt House of Saud spends in wealth on whisky and whores."

Gulf State officials have made no secret of their alarm. Egypt Independent columnist Sultan al-Qassemi [7] reported on February 2, "In a widely circulated video recording of a recent speech in Bahrain, Dubai's police chief, who enjoys close relations with the country's prime minister, warned against the Muslim Brotherhood, stating that their 'threat to the region was just as serious as that of Iran's."

A potential conflict between the Gulf States and Egypt will further add to centrifugal tendencies in the region. They are allies against Iran, but prospective competitors, and deadly ones. The Muslim Brotherhood's efforts to wrest control of Syria from the Iranian-allied Assad family may push the the conflict into an entirely new dimension.

Insufficient attention has been given to the prospective collapse of Syria as a motivation for an Israeli strike on Iran's nuclear program. In the past several days, Israel has sounded public warnings regarding Syria's chemical weapons stockpile, estimated to be the world's largest.

As the Financial Times wrote on March 22, Israel has "profound concern that parts of Syria's vast stockpile of arms, including long-range missiles as well as chemical and biological weapons, will end up in the hands of militant groups in Lebanon or elsewhere. [8] Speaking to the Israeli parliament this week, Ehud Barak, the defense minister, emphasized the short-term dangers posed by turmoil in Syria. 'We are monitoring events in Syria, with an eye on any efforts to transfer weapons that would alter the balance ... Events in Syria increase the uncertainty and the need to prepare for any scenario,' he warned."

Israeli officials warn that an even graver risk would emerge if Iran were to intervene in Syria with regular forces to support the Assad regime, perhaps in response to actual or perceived Western backing for the Syrian opposition. In that case, Iranian regular forces might have control over Syria's chemical weapons, and with it the capacity to retaliate against any Israeli strike against Iran's nuclear capacity.

There has been extensive mention of Syria's chemical weapons capability in the usual outlets, for example, Foreign Policy's Middle East Channel blog. [9] But there has been virtually no mention of what should be the greatest source of concern. Deterrence has always worked with the Assad regime: if Syria were to use chemical weapons against Israel, Damascus would be turned to glass.

The Assad family does not want that to happen, but the mullahs in Tehran do not care much one way or the other; they have never liked Arabs to begin with. If Iran gains control of some part of the chemical stockpile, it gains a retaliatory capability against Israel outside its own borders, and that is something Israel cannot tolerate.

American policy rests on three legs: Use a combination of threats and incentives to stabilize Syria. Rely on the military council to stabilize Egypt. Use the stick of sanctions and the carrot of a civilian nuclear energy program to persuade Iran to stand down from what is widely perceived as nuclear weapons development.

It appears that Washington hasn't a leg to stand on. The Middle East is heading for chaos, not least because the dominant political force in the most populous Arab country, Egypt' s Muslim Brotherhood, believes that chaos will work to its advantage.

As traditional American policy tools fail, the alternative to promoting stability is to manage instability. That is a task for which Americans lack the required cultural skills and iron stomach. But they will have to learn fast.

If the Muslim Brotherhood proposes to gain from an economic crisis that transfers power from the old civil institutions to revolutionary organizations on the street, the obvious riposte is to intensify the crisis, so that the revolutionary organizations cannot manage it: to fight fire with fire, and discredit the Muslim Brotherhood.

Notes 1. See here.
2. See here.
3. See here.
4. See here. 5. See here.
6. See here.
7. See here. 8. See here.
9. See here.

Spengler is channeled by David P Goldman, president of Macrostrategy LLC. His book How Civilizations Die (and why Islam is Dying, Too) was published by Regnery Press in September 2011. A volume of his essays on culture, religion and economics, It's Not the End of the World - It's Just the End of You, also appeared this autumn, from Van Praag Press. This article first appeared at Asia Times.