Abdullah Al-Shadli (South24)

In Yemen, oil exports have long served as a lifeline for the national economy and a main source for covering state expenses. However, by the end of 2022, this financial engine received a severe blow due to the Houthi attacks targeting oil exporting ports in the governorates of Hadramout and Shabwa in South Yemen. This has led to an almost complete cessation of export operations. 

The cessation of oil exports was not merely a temporary disruption in the state’s budget, but has caused a series of structural ramifications hitting public finances, the value of the local currency, and living standards. This has exacerbated the crisis of employees’ salaries and service funding. In the face of this complicated situation, fundamental questions arise about the options available to the Yemeni Internationally Recognized Government: Can this collapse be overcome by activating alternative resources? Does the situation require deeper reform of the frayed administrative and economic infrastructure?

This report tries to explore the roots of Yemen’s current economic crisis and the extent to which it is tied to the cessation of oil exports. The report also highlights the most prominent alternatives and proposals put forth by Yemeni economic experts and specialists, as part of an analytical vision that seeks to understand whether the country is standing at the edge of an abyss or on the threshold of a possible economic transformation.

The Oil Blow

The cessation of oil exports since late 2022 marked a critical turning point in the course of the financial collapse facing Yemen’s Internationally Recognized Government. Throughout the years of war, crude oil served as a central source of revenue, accounting for an estimated 60 to 70 percent of the national budget, according to experts. However, with the Houthis targeting the ports of Al-Dhaba in Hadramout and Al-Nashima in Shabwa, the state lost this vital lifeline all at once.

According to a briefing in May by Abdullah Al-Saadi, Yemen's representative to the United Nations, the losses resulting from the suspension of oil exports amounted to around $7.5 billion from October 2022 to mid-2025, a figure that reflects the scale of the gap left by the absence of oil revenues in an already fragile budget.

Yemeni economic expert and former minister Raafat Al-Akhali believes that the cessation hasn't been merely a stumbling block in the resource road but “a devastating blow” to an already fragile economy. He told ‘South24 Center’ that depriving the state of hard currency from oil exports stripped it of the ability to meet basic commitments, foremost of which are paying the salaries of public sector employees and supporting of key services such as electricity and water. 

He pointed to the multiplier effects, not only on public finance but extending to the deterioration in the value of the Yemeni riyal and the soaring inflation rates, which have exacerbated the poverty levels and catastrophically weakened purchasing power.

He also stressed that the exit of foreign oil companies due to the security risks is an additional strategic loss, and that regaining their trust and bringing them back will require time and effort in an unstable investment environment.

In this regard, economic expert Moustafa Nasr warned of the profound ramifications of the cessation of oil exports, stressing that oil is a main fulcrum of the public budget. He explained that the peak of oil revenues was recorded during the period between 2018 and 2022, exceeding one billion dollars, which is considered significant compared to other relatively modest sources of income.

Nasr told ‘South24 Center’ that the direct impact of this cessation began to be clearly visible in 2024, and expects that its negative impact will continue over the first half of 2025, especially amid the lack of real alternatives. He emphasized that this cessation has exacerbated the current financial crisis, and contributed to the deterioration of the living standards as a result of the weak purchasing power and the government's diminished ability to meet its basic obligations toward citizens. 

Consequences of the Cessation 

The impact of the halt in oil exports hasn't been limited to the state budget -it quickly extended to the very core of daily life of Yemenis, especially in the government-controlled areas. The absence of hard currency inflows has led to an unprecedented decline in the value of the Yemeni riyal, which on June 19, 2025, recorded its lowest level in history. The exchange rate reached approximately 2,700 riyals per US dollar for buying and 2,727 riyals for selling in the capital, Aden, and other governorates. 

This currency collapse, coupled with a paralysis in government funding sources, triggered sharp waves of inflation that have affected the prices of essential goods and services, placing a heavy burden on citizens already living in fragile conditions. With the erosion of purchasing power and the soaring prices of food and fuel, public sector salaries, if they are paid—are no longer sufficient to cover basic needs.

At the same time, dozens of government projects that relied on oil revenues for funding have come to a halt. Furthermore, infrastructure maintenance has stopped, while electricity, water, and transportation services have deteriorated, while the health and education sectors have suffered even more due to a shortage of operational resources.

The crisis hasn't been purely economic, but has turned into a political pressure card in the hands of the Houthis, who exploit the government’s weakness and its inability to pay salaries as an opportunity to strengthen their position, especially amid the sharp differences within the ranks of the government itself. The state’s inability to provide services and fulfil its commitments has eroded its legitimacy in the eyes of citizens. The Houthis use this card as a tool to undermine the legitimacy of their rivals and promote their political narrative. 

A Management Crisis

Despite the heavy losses caused by the cessation of oil exports, many experts believe that the crisis runs deeper than just the absence of this revenue stream. They see it as a reflection of the structural failure in public administration, chronic poor planning, and the spread of corruption in the state apparatus. 

Dr. Fatima Ba-Omar, Member of the Southern Transitional Council’s (STC) Economic Commission, told ‘South24 Center’: “Successive governments have never had a clear economic agenda. The current situation is the result of a colossal failure in managing resources and setting priorities.” She noted that the STC has submitted strategic proposals to address the economic situation as early as 2021, but most of them were ignored, leading to the worsening collapse.

Ba-Omar added that “the government’s spending has remained excessive in unnecessary areas, such as privileges granted to ministers and the excessive costs of embassies abroad paid in hard currency, whereas citizens at home face a suffocating livelihood crisis.” What is more troubling, she says, is that spending policies have remained unchanged even after the state lost 70% of its oil revenues, reflecting a complete lack of accountability.

This point of view is echoed by Egyptian journalist and Yemen affairs specialist, Hossam Al-Saeedi, who believes that focusing solely on oil as the cause of the crisis is a misleading diagnosis. He points out that significant sources of revenue have been neglected or deliberately obstructed, such as customs and taxes. This is in addition to the systematic smuggling via ports and border crossings taking place in plain sight of the authorities with no effective intervention.

Al-Saeedi told ‘South24 Center’ that successive governments have merely played the role of "spectator" amid the financial disorder, ignoring necessary reforms. He proposes a package of urgent measures, including reducing the number of diplomatic missions, halting the salaries of officials abroad, and forming a small technocratic government to manage the current phase more effectively.

Available Alternatives 

Amid this deepening crisis, the Yemeni Internationally-Recognized Government appears to have limited options. However, they remain viable if there is political will and executable plans. The overreliance on oil as the sole source of income has exposed the fragility of the economic system, raising serious questions about how to diversify income sources and activate untapped alternatives.

Economic expert Mustafa Nasr believes that despite more than two years having passed since the suspension of oil exports, the government has not developed any genuine and sustainable alternatives. Instead, it has relied on grants from regional and international donors. In his view, the current crisis provides a valuable opportunity to restructure public revenue and transition towards stable sources that are not tied to political or military crises.

Raafat Al-Akhali proposes a five-point roadmap for medium-term economic recovery, as shown below: 

1. Reform the financial and tax system: By improving the efficiency of local revenue collection, modernizing the tax system, and enforcing collection mechanisms across all commercial activities and regions that fail to deposit funds to the Central Bank, such as Marib and Taiz.

2.Focus on non-oil export sectors: Especially agriculture and fisheries which have competitive potential in Yemen and can generate foreign currency and create broad employment opportunities.

3. Accelerate digital transformation in state administration: To enhance transparency, and reduce corruption while adopting digital financial systems that enable effective tracking of expenditure and revenue.

4. Invest in Renewable Energy: Particularly decentralized solar energy systems, which can reduce dependence on imported fuel and provide lasting solutions for rural areas and productive sectors.

5. Support entrepreneurship and small and medium enterprises: As a strategy to stimulate the economy from the ground up, and build a resilient local private sector that can expand beyond reliance on the state.

Despite the practicality of these proposals, Al-Akhali stresses that their success depends on urgent and conditional international support. He calls on Saudi Arabia and the UAE to link any new financial aid to a clear reform program and to provide the necessary technical assistance for its implementation. Furthermore, there is a need to build a strong partnership with Yemen’s private sector.

However, Hossam Al-Saeedi adopts a more pessimistic view, arguing that widespread corruption will likely swallow any aid or reform plans. He bitterly asks, “Where did the billions of dollars in previous aid go?”, a reference to the lack of oversight and transparency. He compares the Yemeni government's performance over the past decade with what he calls the “relatively swift success” of Syria’s new government in Damascus, asserting that genuine reform must come from within, not be imposed from the outside.

This argument is endorsed by Fatima Ba-Omar who referred to the systematic hard currency smuggling operations to Houthi-controlled areas, that have practically contributed to funding the war against the government itself. She also criticized the Central Bank's failure to compel major revenue-generating institutions to remit their funds, a failure that undermines its authority and erodes international partners' confidence in any forthcoming reforms.

From this perspective, alternatives do exist, but they rely on political will and a serious fight against corruption. They are tied to a redefinition of the state’s role, moving away from the concept of revenue and waste toward a sustainable and productive one.