MIDDLE EAST: The Rising Cost of Peace

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Both Egypt and Israel are beginning to feel the pinch

The dogs can go on barking—but they will not stop the caravan." So said Egypt's President Anwar Sadat last week, in a brave dismissal of critics within the Arab world who have denounced him as a traitor for signing a peace treaty with Israel. In fact, those "dogs" yapping at Sadat have plenty of bite. The truth is that the cost of peace for both Israel and Egypt is beginning to hurt in earnest.

Ostracized politically by 18 Arab countries that have broken off diplomatic relations with Cairo.* Egypt has been dealt a series of punishing economic blows and now faces the threat of more to come. First, Saudi Arabia appeared to renege on its year-old promise to buy 50 U.S. F-5 fighter planes for Egypt at a cost of $525 million. Then Saudi Arabia and Kuwait both threatened to withdraw their $1.6 billion in petrodollars from the Central Bank of Egypt.

Next, the Gulf Organization for the Development of Egypt, a consortium of oil-rich Persian Gulf states that philanthropically pumped $1.7 billion into Egypt last year, advised Cairo that it was scrapping all pending projects. Finally, the Arab Organization for Industrialization, which was set up in 1975 to produce everything from helmets to helicopters with Egyptian manpower and $1.4 billion in financing from Saudi Arabia, Qatar and the United Arab Emirates, abruptly halted its operations. As a result, 16,000 Egyptians stand to lose their jobs.

Egypt was also suspended from the Organization of Arab Petroleum Exporting Countries and will thus lose its shares in three inter-Arab companies with a total capital of $2.8 billion. Although it did not specify exactly when the decision would take effect, the Arab Civil Aviation Council voted to close Arab airspace to Egypt's national airline, EgyptAir, and ordered its 17 member airlines to suspend flights to Egypt.

Egyptian periodicals and films have been banned from almost all the boycotting countries. Even the World Tourism Organization, a loose association of governmental travel bureaus that develops package tours in the Middle East, abruptly moved its regional headquarters from Cairo to the Jordanian capital of Amman. Reminded of the longstanding Arab boycott against Israeli commercial interests, one U.S. businessman in Cairo concluded: "We're faced with a new Arab blacklist."

Officials in Cairo insist that the country will weather the boycott. To counter the possible withdrawal of Saudi and Kuwaiti petrodollars, for example, the Central Bank reportedly will refuse to pay up. To rescue at least some of the A.O.I, arms contracts, Cairo hoped to go ahead with independent Egyptian production of military Jeeps designed by American Motors and Swingfire antitank missiles manufactured under British license.