The economic crisis gripping areas controlled by the Internationally Recognized Yemeni Government has reached its peak since the cessation of Yemeni oil exports in October 2022. Two weeks ago, the value of the Yemeni riyal plummeted to beyond 2,040 riyals for one US dollar, for the first time since the beginning of trading with this currency.

Abdullah Al-Shadli (South24)

On October 31, the World Bank released a report warning of the deterioration of humanitarian and economic conditions in Yemen. The report predicted a 1% economic decline in economic growth in 2024, compared to 2% last year. The report pointed to a 42% drop in revenues of the IRYG in the first half of 2024 due to the Houthi blockade imposed on oil exports since October 2022. This has impaired the government’s ability to provide basic services to the people, leading to increase in poverty levels and food insecurity.

The depreciation in the local currency’s value has led to a spike in food prices concurrently with the deterioration in basic services provided to people in South Yemen and the few Northern areas controlled by the government. Electricity is among the most affected services as the power outage rate in Hadramout has reached 20 hours per day.

These dire conditions have led to angry demonstrations and popular movements in Hadramout, especially those led by the Hadramout Tribes Confederacy (also known as the Hadramout Tribes Alliance). They have put forth a list of political and human rights demands as well as asked for the deployment of armed forces around oil fields, and even threatened to impose a self-rule. On October 23, the district of Al-Shihr in Hadramout witnessed the beginning of a wave of protests against the deteriorating services.

On October 16, the city of Taiz witnessed a limited general strike and a popular demonstration to protest the accelerated collapse in the value of the local currency.

Oil Exports

On October 24, during a meeting in Washington, attended by the governors of central banks and financial ministers of Middle Eastern and North African countries along with Pakistan, Ahmed Ghaleb al-Mabaqi, Governor of the Central Bank in Aden, said that the Yemeni government has lost more than $6 billion over the past 30 months as a result of the cessation of oil and gas exports due to the October-November 2022 Houthi attacks on ports in Hadramout and Shabwa.

He said an additional reason is the targeting of international navigation in the Red Sea by the Houthis. This has doubled the costs of maritime transport and insurance, thus disturbing the supply chains. All this has deepened the suffering of the people and worsened the economic and humanitarian conditions further. This has led to food insecurity, the lack of the ability to provide basic services, and the rise in poverty rates to more than 80%.

So far, the Yemeni government hasn’t been able to resume oil exports due to the lack of military capabilities needed to thwart Houthi drone and missile attacks. This is in addition to the political and economic arrangements that Saudi Arabia and Oman have sought to implement through the UN envoy to Yemen. This was before the war in Gaza and the Houthi’s maritime campaign to target vessels cast a shadow, leading to freezing the Yemen peace roadmap.

Military expert Abdulnasser Al-Senidi stressed that the Presidential Leadership Council (PLC) “faces a real problem due to the strategic Houthi weapons, such as the anti-ship missiles and drones”. He told ’South24 Center‘: “The Houthis are irregular elements who don’t submit to international laws. In this backdrop, it is important to support forces that confront them on the ground, foremost of which are the Southern forces, in order to weaken them.” 

Political expert Mahmoud Al-Taher believes that the lack of political decision-making is hindering the resumption of oil and gas exports more than the military reasons. He told ’South24 Center‘: “Some officials in the government work according to personal agendas and may be influenced by foreign approaches. There are also personal interests involved, including of some military commanders and ministers in the PLC, which makes things more complicated.”

According to Al-Taher, “the Yemeni government faces big challenges in implementing what it wants, especially in the wake of apprehensions of a possible military confrontation in the coming period as the Houthis largely prepare to invade the western coast of the country”.

Political and Security Ramifications

Dr. Sami Mohammed, Professor of Political Science in the University of Aden, warned that continuation of the deteriorating economic conditions will lead to worsening of the political and security conditions in the country.

He told ’South24 Center‘: “The soaring crime rates, the collapse of the local currency, and the growing prices of basic commodities may push the Houthis to exploit the situation to present themselves as an economic alternative to the government. In case fighting breaks out, the government will be hampered due to limited resources in a way that can complicate the situation further.”

He stressed on the need for the government to take urgent measures to curtail the collapse of the currency through reducing hard currency spending, encouraging national industries, and attracting investments. He pointed to the importance of finding new funding resources and resuming oil and gas exports. 

Sami Mohammed believes that “the available solutions are limited. The state should provide urgent support. However, this requires a clear plan”. He warned that without receiving this aid, the country may face a real disaster, especially amid the citizens’ lack of commitment to paying up the fees for basic services.

Extended Failure

Economic expert Abdulhamid Al-Masajdi describes the current crisis as “among the worst ones since the outbreak of the war”. He believes that the reasons behind this are attributable to several factors, including corruption and the failure in managing economic issues. 

Al-Masajdi told ’South24 Center‘: “The current situation requires drastic changes. Corrupt figures control the fate of the economy. This is a crime against the nation. Despite the proposed economic solutions, the continuing corruption hinders their implementation. This has a negative impact on the economy and livelihood of the people.” 

Al-Masajdi explained that “the Yemeni government is apparently unable to find alternative measures to the cessation of oil exports which reflects a disastrous failure.” 

On October 16 during a meeting with the Central Bank’s leaders in Aden, Yemeni Prime Minister Ahmed Bin Mubarak talked about a “conspiracy” aiming to destabilize the economy. 

Bin Mubarak stressed that “the sharp and unjustified deterioration in the national currency exchange rate constitutes an existential threat to the national economy. It is as dangerous as the security challenges that face the country. The collapse of the Yemeni riyal isn't a result of natural economic factors and doesn't match the size of the circulated money”. 

On October 24, the STC’s Presidium warned of the risks of continuing the ongoing foreign currency policy adopted by the Central Bank in Aden through untransparent auctions. “Banks and exchange companies in Sanaa are the ones that mainly benefit from those auctions”. 

It called for “ending those auctions and revoking the decision of exchange rate devaluation while imposing a fixed one". 

In the foreseeable future, it doesn't appear likely that the economic situation in Yemen will improve amid the failure to resume oil and gas exports, take practical measures to counter corruption within the government, and apply economic reforms in its financial institutions.