Egypt is facing enormous difficulties in its attempts to convince Iraq’s Shia-led government to extend it financial and economic aid amid growing fears that the country is on the brink of an economic downhill slide.

Hard hit by its inability to finance imports of fuel, wheat and other basic commodities caused by sliding foreign currency reserves and a soaring budget deficit following the 25 January Revolution that toppled former president Hosni Mubarak, Egypt has been casting around for credits and cash to stem an economic collapse.

Iraqi officials say that Cairo’s efforts to gain Iraqi Prime Minister Nuri Al-Maliki’s approval for a multi-billion dollar bond to be deposited in Egypt’s Central Bank to bolster its faltering economy and pay for badly needed supplies of crude oil have stumbled over Egypt’s desire for generous terms and domestic political complexities in both countries.

Last week, Al-Maliki’s deputy Hussein Al-Shahristani was quoted as saying that his country would ship four million barrels of crude oil to Egypt every month starting from April. The announcement raised hopes that the Iraqi supplies would help assuage a severe fuel shortage that has been feeding anti-government sentiment in Egypt.

But one Iraqi official said that little had been done to finalise an agreement that could meet Egypt’s ambitious expectations from a country that is already embroiled in political conflict and ethno-sectarian strife that its Shia-led government partially blames on its Sunni-dominated Arab neighbours.

“We haven’t seen any sign of concrete talks. In order for the oil deal to hit the ground, Baghdad is waiting for detailed negotiations with Cairo regarding a broader and more systematic approach to bilateral relations,” the Iraq official told Al-Ahram Weekly on Tuesday.

“There are outstanding issues which need to be tackled before any financial or oil deal can be reached,” he stressed without elaborating.

Among the obstacles that Iraq says could block any financial deal with Egypt are restrictions on transactions put in place by the UN sanctions following former Iraqi president Saddam Hussein’s invasion of Kuwait in 1990, including an embargo on the Cairo branch of the Iraqi state-owned Rafidain Bank which Iraq wants to reopen to handle financial transactions.

Iraq also wants Egypt to lift visa restrictions on its citizens, who currently need security clearance for entry.

In addition to these restrictions, a request from Egypt for a $4 billion bond to be deposited in Egypt’s Central Bank to shore up its foreign currency reserves has hit a snag over the easy terms requested by Egypt, according to the Iraqi official, who spoke on condition of anonymity.

Egyptian President Mohamed Morsi had initially made a request for a $5 billion deposit during a visit by Al-Maliki to Cairo in February. The sum was meant to be similar to the deposits in Egypt’s Central Bank from Qatar, Saudi Arabia and Turkey that have been ring-fenced and cannot be touched.

Al-Maliki reportedly told Morsi that he could not guarantee the endorsement by Iraq’s fractured parliament of such a huge sum, but that he would consider a smaller amount and suggested negotiations between the two governments on terms.

Egypt is also believed to be seeking Iraqi crude oil at preferential prices in a deal similar to the one with neighbouring Jordan. Egypt is said to want to import diesel fuel from Iraq on a daily basis.

Last month, Egyptian Prime Minister Hisham Kandil visited Iraq at the head of a large government and business delegation to follow up on the loan request and make other requests, including the provision of Egypt with crude oil.

The talks also focussed on the areas of trade, power, health and reconstruction. After the visit, Iraq lifted a ban on Egyptian dairy imports and released pensions owed to Egyptians who left Iraq after Saddam’s invasion of Kuwait in 1990.

Iraqi-Egyptian relations were broken off in 1990 after Egypt joined the US-led coalition that forced Iraq out of Kuwait during the Iraq-Kuwait war. The two countries partially patched up ties during Saddam’s last years in power, with Egypt becoming Iraq’s fourth-largest business partner, but relations have remained cool with the Shia-led government that came to power in Iraq following Saddam’s ouster.

Last year, Iraq transferred $408 million, the value of remittances owed by Iraq, to 670,000 Egyptian workers who left the country in the 1990s during the Gulf War. Efforts to solve the problem during Mubarak’s rule had faltered because Egypt had insisted that Iraq should also pay some $100 million in interest.

While Egypt is still waiting for Baghdad’s nod to help salvage its sky-diving economy, it has also escalated attempts to improve relations with Shia Iran, which is believed to be a close ally of Al-Maliki’s government.

Iran and Egypt resumed commercial flights this week some 34 years after the two countries severed relations following the Islamic Revolution in Iran that toppled the pro-Western shah Mohamed Reza Pahlavi and triggered an ideological backlash from Egypt.

Relations soured even more under Mubarak, who accused Iran of supporting radical Islamist groups in Egypt and Shias throughout the Middle East.

But Tehran and Cairo moved to improve ties following the ouster of Mubarak, and Morsi was the first Egyptian president to visit the Islamic Republic last August. In February, Morsi received Iranian President Mahmoud Ahmadinejad in Cairo while the latter was attending a conference of Islamic nations.

On Sunday, dozens of Iranian tourists arrived in southern Egypt to visit Pharaonic sites as part of a bilateral tourism-promotion deal. The following day, Ahmadinejad signed a draft law that would see the lifting of visa requirements for Egyptian tourists visiting the Islamic Republic.

Under a cooperation agreement signed last month, charter flights between Egypt and Iran will link the Upper Egyptian tourist cities of Luxor, Aswan and Abu Simbel with Iran.

Iranian tourists will initially not be allowed to visit Shia shrines in Cairo.

Egypt’s willingness to engage with Iraq and Iran could be largely motivated by economics, but it also indicates how economic difficulties are shaping the perspectives and strategies of Egypt’s new Islamist rulers.

Many observers believe that thaws in relations with Iran and stepping up ties with Iraq could signal the intention of the Egyptian government to integrate economic relations with foreign policy, even if that could harm its relations with some of Egypt’s traditional allies.

Many Egyptians feel they have been betrayed by their Sunni Arab brethren since the 25 January Revolution and feel shock and anger at what they consider to be their economic excommunication, leaving the country to scramble to cut deals abroad to help keep it from sinking into chaos.

Egypt has sought help from several wealthy Arab countries to shore up depleted reserves in its Central Bank, but few have been forthcoming. Only the oil-rich Gulf emirate of Qatar has provided funding, including a $5 billion loan deposit.

Saudi Arabia, the world’s largest oil exporter, has provided only $1 billion in loans.

On the other hand, Cairo’s new approach could challenge the United States, which considers Iran to be its arch-enemy in the Middle East. Washington is Egypt’s largest donor, and it has announced that it will provide an extra long-term loan of $450 million to spur reform.

Some Egyptians believe that their Muslim Brotherhood-controlled government is playing a dangerous game by trying to put pressure on the oil-rich countries in the Gulf by strengthening cooperation with Iran and Shia-led Iraq.

They believe that this policy could further alienate Egypt from its Arab neighbours, while giving no guarantees that the Iraqis and Iranians will deliver.

The policy is also facing domestic opposition. Hard-line Islamist groups such as the Salafists have voiced concern that Iranians and Iraqi Shias could soon be flocking to Egypt to spread their Shia brand of Islam.

A previously unknown group called the Islamic Alliance for the Defence of the Prophet’s Companions and his Family warned on Sunday that it “would not allow” Iranian tourists into Egypt and would send them back to their country.

But Essam Al-Erian, a senior Muslim Brotherhood leader and deputy president of its political front the Freedom and Justice Party, dismissed the threats.

“Egypt cannot be infiltrated by a trend or an ideology. It has defied communism and secularism, and it has mixed its nationalism with an Islamist element,” he wrote on Facebook on Saturday.

“Egypt will remain Sunni,” Al-Erian wrote.

However, the hard political facts remain. Iraq’s Shia-led government and its Iranian allies are not going to help Egypt without reciprocal political benefit. For them, the goal should be to lure Egypt further away from its Arab Sunni brethren, especially Saudi Arabia and the other Gulf nations.

Such an outcome would be extremely costly to Egypt, which would likely suffer from restrictions and probably boycott by the Gulf countries and the United States, jeopardising other aspects of its foreign policy.