Is northeastern Africa heading for a bloody "water war" between its two most important countries, Egypt and Ethiopia? Judging by the rhetoric of the past two weeks, one could be forgiven for thinking so.

Ethiopia's plans to build a multibillion dollar dam on the Nile River spurred Egyptian President Mohamed Morsi - whose country lies downstream from Ethiopia - to vow to protect Egypt's water security at all costs. "As president of the republic, I confirm to you that all options are open," he said on Monday. "If Egypt is the Nile's gift, then the Nile is a gift to Egypt… If it diminishes by one drop, then our blood is the alternative."

The following day Dina Mufti, Ethiopia's foreign ministry spokesman, said that Ethiopia was "not intimidated by Egypt's psychological warfare and won't halt the dam's construction, even for seconds".

Morsi's bellicose warnings followed the suggestions of leading Egyptian politicians on television last week that Cairo should prepare airstrikes and send special forces to uphold its God-given right to the lion's share of Nile waters. The Ethiopian government of Prime Minister Hailemariam Desalegn has signalled that it is not impressed and that it will carry on with work on the multibillion dollar Great Ethiopian Renaissance Dam - a move seen by some as raising temperatures further, possibly triggering the "water wars" that pessimists have long predicted will characterise the geopolitics of the 21st century.

The war of words between Cairo and Addis Ababa is only the latest episode in a long history of confrontation between the two. About 60 percent of the Nile's waters flow downstream from Lake Tana in Ethiopia, through Sudan, to Egypt. The building of the modern Egyptian state in the 19th century was closely connected to the idea of an Egyptian agricultural and industrial revolution; the Nile was to be controlled and harnessed for economic development through large-scale irrigation works, canals and dams so that Egypt could export cotton and other strategic crops to global markets. The notion of establishing maximum control over the Nile and consolidating regional hegemony more broadly pushed Egypt to invade Sudan in 1821 and to occupy eastern Ethiopia in 1875.

Zero-sum mentality

The zero-sum mentality of that era - that others cannot be trusted with the waters of the Nile, and Cairo must at all times control its own water destiny directly - endures to this day. Both the construction of the controversial High Dam at Aswan and the 1929 and 1959 Nile Waters Agreements were guided by the same paradigm.

The latter allocated 55.5 billion cubic metres of water to Gamal Abdel Nasser's Egypt and 18.5 billion cubic metres to Sudan, while the government of Haile Selassie was shut out of the negotiations: all water was essentially given to the downstream states at the expense of Ethiopia and other upstream countries including Uganda, Kenya and Tanzania. While Aswan ended Egypt's dependence on the erratic Nile flood and the 1959 treaty locked in Egyptian hydro-hegemony, it infuriated Addis Ababa.

Thus, rather than definitively resolving Cairo's existential angst about its extreme dependency on the river (97 percent of renewable water resources in Egypt come from the Nile), Aswan and the 1959 agreement created permanent tensions between upstream and downstream riparians that have destabilised the basin for decades. Proxy wars (pp 104-107), which claimed the lives of millions of people between the 1960s and 2000s in and around Sudan and Ethiopia had several complex causes, but the struggle between Cairo and Addis Ababa for primacy in the Nile Basin was an important one.

In the last 15 years, however, Egypt's hydro-hegemony has progressively unravelled due to a combination of factors. First, Cairo's neglect of Africa in its foreign policy under Hosni Mubarak cost it dearly. Its alliance with Khartoum has turned into a permanently uncomfortable relationship since Sudan's military-Islamist revolution in 1989; Egypt was historically the greatest opponent of self-determination for Southern Sudanese, but was unable to get the referendum clause removed from the Comprehensive Peace Agreement that allowed South Sudan to become an independent state in July 2011. Once respected and admired around the continent, Mubarak's systematic disinterest in the African Union diminished Egyptian influence in the Nile Basin and outside it.

Second, while unemployment, inequality and corruption have soared in Egypt in the last 15 years - ultimately culminating in the 2011 revolution that ousted Mubarak - upstream countries have transformed themselves. The late Meles Zenawi turned Ethiopia from an international object of pity into a regional power to be reckoned with through spectacular economic growth and a masterful foreign policy.

Third, the arrival of China on the African scene has given upstream countries financial and technical options that were simply unavailable during the 20th century. For decades, Egypt, through its alliance with Washington, was able to stop any funding by the international financial institutions for upstream hydro-infrastructural projects with the argument that it would be politically destabilising. Chinese bankers and engineers have been less receptive to such arguments and have enthusiastically helped Sudan and Ethiopia to implement their incredibly ambitious dam programmes, which are supposed to transform the regional political economy. Addis Ababa and Khartoum combined have built, are building or are planning more than 25 big hydro-electric dams to improve water security, bolster food production and generate electricity for industrialisation.

In other words, Ethiopia's big push on the Great Ethiopian Renaissance Dam is a logical consequence of a broader shift that has been underway for years and that a weakening Egypt has failed to stop. Construction of the dam began, not coincidentally, in April 2011, just two months after the overthrow of Mubarak, a watershed used by Meles Zenawi to symbolically usher in a new era of Nile Basin geopolitics. Wikileaks cables have since shown that Cairo had already threatened to bomb new hydro-infrastructure initiatives on the Blue Nile back in 2009-2010 but was told by Washington and Khartoum that this would be politically unacceptable, as well as logistically extremely challenging.

Ethiopia is a key ally of the US in the fight against terrorism and piracy in the Horn of Africa and the Arabian Peninsula; for both Sudan and the US, Ethiopian diplomatic efforts are vital to ensure that Khartoum and Juba do not go to war again and cooperate over oil exports. The site of the Great Ethiopian Renaissance Dam is more than 1,000km from Egypt's southern border. That combination of diplomatic isolation and military obstacles - not to mention Egypt's domestic divisions and instability, which make war financially unaffordable - essentially mean that, despite Morsi's claims, not all options are on the table.

Regional integration needed

What, then, is the alternative? Egypt, Ethiopia, Sudan and South Sudan have some of Africa's poorest populations and they face colossal challenges in reducing poverty, expanding public services and countering ecological degradation. As I outlined in a Chatham House report in 2011, regional integration would go a long way to help avoid the classic pitfalls of natural-resource development such as the resource curse.

The onus is clearly on Cairo to bite the bullet and reverse its zero-sum water paradigm.

Resource scarcity can trigger conflict, but it could also stimulate peaceful cooperation. Ethiopia, Egypt and Sudan have much to gain from incremental closer cooperation and a grand energy deal that would put Ethiopia's water resources at the disposal of the region. For all of Egypt's apocalyptic rhetoric about Ethiopian selfishness, the little publicised truth remains that it will be cheaper to send the thousands of megawatts that the Great Ethiopian Renaissance Dam will produce to Sudan and South Sudan (and possibly to Egypt) than it will be ready to transmit the electricity to the Ethiopian highlands.

The very design of the Great Ethiopian Renaissance Dam demands regional integration: Addis Ababa is desperate to sell much of its estimated hydropower potential (40,000-45,000 megawatts) to its neighbours to raise much-needed cash, to extend its diplomatic influence, and to develop more balanced trade relations with the outside world.

With the majority of those in the region still not connected to national grids, the Nile Basin sorely needs cheap power to improve living standards, to boost economic growth, to make industries more competitive and to modernise agriculture so that food security crises can be addressed more effectively.

The Ethiopian government must provide more technical details about the Great Ethiopian Renaissance Dam and other hydro-infrastructure projects to assuage fears over cutting off Nile flows to Sudan and Egypt; it must understand that Egypt's difficult domestic transition makes reform in the foreign policy arena particularly tricky.

At the same time, the onus is clearly on Cairo to bite the bullet and reverse its zero-sum water paradigm. It is high time for it to appreciate that the Nile is not Egyptian, but an African river. Egypt should not issue empty threats of war, but endorse Ethiopia's dam programme and work together with Sudan and South Sudan to ensure its full potential is realised. More than any other gesture in international politics, this would mark a return of Egyptian statesmanship and pave the way for a future of resource abundance and regional peace after centuries of confrontation.

Harry Verhoeven completed a doctorate at the University of Oxford, where he teaches African politics. His research focuses on conflict, development and environment in the Horn of Africa and the Great Lakes Region, and he is the Convenor of the Oxford University China-Africa Network (OUCAN).