Sanaa faces dire situation

14 July 2015

With Yemen in the grip of a civil war that has left it relying on international goodwill, the outlook for the country’s economy is bleak

2015 breakeven oil price $164

2014 breakeven oil price $160

Since 2011, Yemen has lurched from one crisis to the next as civil war and political transition have left the country on the brink of a massive humanitarian crisis and close to being ripped apart.

After resigning in January, President Abd Rabbu Mansour al-Hadi left the country for Riyadh in March, and since then Houthi rebels have taken over large tracts of the country and are being bombed by a Saudi Arabia-led coalition force.

Grim picture

The fighting has left an already impoverished country relying on international charity and, as of late May, Yemen remains on the brink of an all-out war with its economy in tatters.

The economic outlook makes grim reading and there is clearly no chance of any recovery in the short- or mid-term. Most international companies have pulled out their expatriate workers and there will be no prospect of return until the security situation improves.

In early 2014, three years of turmoil in Yemen was beginning to level off and there was real optimism about a possible recovery after a decision was made to transform the country into a federal state, with subsequent elections to be held in 2015.

This changed in September 2014, when Houthi rebels, who had been waging a decade-long war against the Yemeni government, took advantage of unrest over the abolition of fuel subsidies to launch a short offensive.

This led to the dissolution of parliament in January 2015 and the resignation and house arrest of President Hadi. He eventually escaped from his confinement, recanted his resignation speech and began a fierce power struggle against the Houthis.

According to the World Bank, Yemen is one of the poorest countries in the Arab world, with poverty rising from 42 per cent of the population in 2009 to 54.5 per cent in 2012. In addition, 45 per cent of the population is food insecure and water resources are way below the regional average.

Recession and uncertainty have become the norm in the country, with growth lower than 2 per cent in 2014 and 2015 expected to fare much worse.

Yemen relies on hydrocarbon revenues to prop up its economy and, with oil prices down to about $60 a barrel and liquefied natural gas prices down to $7 a million BTU, it is certain that little will be achieved for the foreseeable future.

The World Bank suspended all missions to the country and all payments to managed trust funds, after deciding there was almost no chance of Yemen being able to meet its commitments.

In a statement the World Bank said: “Economic recovery is confronted with several structural challenges. Yemen’s is an oil-based economy with high unemployment and weak governance and institutional structures.… Economic prospects will depend on progress on the political and security fronts and implementation of these critical reforms.”

No quick resolution

It is clear that Yemen will remain a no-go area for foreign companies, and the lack of international investment has led to a dire situation. All that can be hoped for now is that the civil war will level off, but a resolution still looks distant.

Since March, Yemen has been thrown into chaos as militia forces loyal to President Hadi have fought Shia Houthi forces across the country. 

Yemen is a melting pot of the kind of tensions that have wrought chaos elsewhere in the region. The country is already divided due to a Shia rebellion in the north, boiling secessionist sentiment in the south and a virulent Al-Qaeda franchise.

Many suspect Iran is bankrolling the Houthis, while a Saudi Arabia-led 10-nation coalition force is providing air cover for Hadi loyalists.

As fighting continues, there is a real worry that the situation could escalate into an all-out proxy war between Iran and Saudi Arabia, especially if a decision is made by the coalition to put boots on the ground in the country.

What is clear after more than two months of fighting is that there is not going to be a quick resolution to the problem. Riyadh has made it plain that it is not prepared to allow the Houthis to assume power in a country with such close geographical and political ties to Saudi Arabia.

With Tehran almost certain to back any form of Houthi government, there is clearly some way to go before any type of peaceful resolution can be reached.

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