WASHINGTON – Reports that the US has quietly suspended the delivery of military assistance to Egypt are false, the State Department said on Tuesday. However, Washington continued to debate the merits of delivering aid after last week’s violent crackdown on Muslim Brotherhood demonstrators by the Egyptian military.

“We have not made a policy decision to suspend all of our aid to Egypt, period,” said State Department deputy spokeswoman Marie Harf on Tuesday. “Any reports to the contrary are simply false.”

Harf added that the situation is under review.

Meanwhile, President Barack Obama convened his National Security Council at the White House on Tuesday afternoon to discuss the aid and the larger political crisis unfolding in Egypt.

“These kinds of national security meetings are not uncommon,” spokesman Josh Earnest said. “I wouldn’t anticipate any major announcements related to our aid assistance in the immediate aftermath of this meeting.”

As last week’s military operation against supporters of ousted president Mohamed Morsi bloodied Egypt’s streets, ultimately leading to the deaths of over 1,000 civilians, the US Air Force awarded General Electric with a contract to upgrade Egypt’s aging fighter jets.

The ill-timed deal highlights the difficulties facing Obama in suspending, or “reprogramming,” the aid.

US foreign military assistance to Egypt – which amounts to 1.23 billion after sequestration – is transferred from the Treasury into an Egyptian account at the Federal Reserve, and cannot be withdrawn by the Egyptians to be spent on anything other than contracts previously agreed upon throughout regular negotiations with the US.

“All foreign aid serves as budget displacement, in a sense,” says Tamara Wittes, director of the Saban Center for Middle East Policy at the Brookings Institution.

“When the United States subsidizes weapons procurement for the Egyptian military, it means they don’t have to spend their own money, and they can spend it on other things.”

Over half of the 2013 aid has already been transferred into Egypt’s account. And while it cannot be taken back, those funds can be frozen if the US decides to renege on its contracts or renegotiate them.

But the large majority of those contracts are awarded to American defense firms, which expect those deals to be fulfilled in one way or another.

To satisfy all parties, the US has several options to choose from. The Obama administration can reallocate aid previously designated for military purposes as economic or humanitarian aid, and then address provisions of the contracts with General Electric, Boeing, Lockheed Martin and their rival companies separately.

The Pentagon can then renegotiate a separate arrangement with the companies that satisfy their bottom lines. The US military can foot the contracted bills itself, for example, and keep the equipment for itself.

“All of these complexities only underscore how critical it is that the decision be rooted in a strategic judgment on what is in the country’s best interests,” Wittes said.

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