TaizFor two years, Yemen has been facing an unprecedented financial crisis as a result of the cessation of oil exports as a result of the ongoing conflict between the internationally recognized government and the Houthi group.
The cessation of oil exports began in October 2022, after attacks launched by the Houthis on the port of Al-Nashima and the port of Qena in Shabwa Governorate, and the port of Al-Dabbah in Hadramaut Governorate, east of the country.
At that time, the Houthi group announced – in more than one statement – that it had carried out “warning strikes” in these ports, to prevent the “looting” of crude oil, as it called it.
The Houthis’ action comes as pressure on the government to pay the salaries of employees in the areas under its control, which have stopped since 2016 following the transfer of the recognized Central Bank from the capital, Sana’a, to the city of Aden.
$6 billion losses
Although Yemen is a small producer of crude oil, its revenues constitute about 70% of the state budget in light of the difficult circumstances that the country is suffering from as a result of the war, which makes the cessation of oil exports a major financial loss for the government.
In this context, the Governor of the Central Bank, Ahmed Ghaleb Al-Maqi, announced last Thursday that his country “lost more than 6 billion dollars from its own resources as a result of the cessation of oil and gas exports due to Houthi attacks on oil ports and tankers, in addition to targeting international navigation in the Red Sea.”
He added – in a statement published by the Central Bank website – that the cessation of oil exports “led to an increase in the suffering of the people, an accelerated deterioration in conditions, food insecurity, an inability to provide basic services, and an increase in poverty rates to exceed more than 80%.”
What does the Houthis’ position look like?
The leader of the Houthi group, Hamid Assem, told Al Jazeera Net, “The suspension of oil exports came due to the Yemeni people not benefiting from its revenues, while the delivery of employee salaries has continued to be prevented since 2016.”
Assem – who previously participated as a member of the Houthi team in negotiations with the government – added, “80% of Yemenis’ salaries come from oil revenues exported to other countries, but the Aden authorities (the UN-recognized government) categorically refused and prevented the supply of oil and gas to us.” (Houthi-controlled areas) except under harsh conditions, as if we are not among the Yemeni people, even though Yemen is under a state of siege.”
The Houthi leader added, “Our last solution was to prevent the export of this oil, and for it to remain in land storages, rather than being sold or looted by the Aden authority..”
He said, “In the past, they were saying that they would transfer the Central Bank to Aden, and the American ambassador was threatening to do so while we were negotiating in Kuwait (in 2016), and it was actually transferred, and they did not fulfill their obligations to pay salaries to the Yemeni people.”
Assem added, “When the revenues were coming to Sanaa, we would pay the salaries of the people of the southern and eastern governorates before the salaries of the people of the western and northern governorates were paid.”
Regarding the future of the issue, the Houthi leader believes that “this file is in the hands of Saudi Arabia and the United States, and if they want to solve it, the solution will be done, and if it is not done, the suffering of the Yemeni people will remain, and there will be an escalation by Sana’a until it obtains the rights it should obtain.”
Assem demanded that the Stockholm Agreement be implemented in 2018, that oil be exported with the consent and agreement of all parties, and that the proceeds go to the Yemeni people so that they can enjoy their wealth. As for draining the oil wealth to the authority of Aden… and other hands, it is not possible at all.”
Disastrous repercussions
Regarding the effects of the cessation of oil exports on the situation in Yemen, economic analyst Wahid Al-Foudayi believes in a statement to Al Jazeera Net that this “led to great pressure on the local currency (the riyal) because the oil sector, before its exports stopped two years ago, represented more than 70% of the legitimate government’s revenues.” “.
Al-Foudayi adds, “The importance of this ratio lies in the fact that it represents a source of income in hard currency that enhances foreign reserves and positively affects the balance of payments, which is directly linked to the local currency exchange rate, according to financial reports issued by the Yemeni government.”
The deterioration of the riyal
The economic analyst stated that “the decline in oil revenues left a large gap in government financing, which led to a shortage of liquidity in the public treasury and increased reliance on currency printing to finance government expenditures.”
He added, “These factors combined negatively affected the value of the riyal, which witnessed a significant deterioration, and inflation rates rose significantly.”
Al-Foudayi warned that “the continuation of the situation as it is without intervention may lead to an unprecedented economic and humanitarian catastrophe.”
Regarding the possibility of developing governmental solutions to deal with the crisis of stopping oil exports, Al-Fudai believes that “there are some potential solutions that the government can follow, such as improving the efficiency of financial management, improving the collection of local revenues, in addition to expanding the department of taxes, customs, foreign aid and grants, as well as encouraging foreign investment in Yemen.” .
Recently, the price of the local currency declined in an unprecedented way, as the price of one dollar reached about 2,050 riyals on Tuesday, after its price was about 1,100 riyals before oil exports stopped in October 2022.
The deterioration of the local currency led to a state of discontent and demonstrations over the past few days in more than one city, demanding an urgent solution to stop the deterioration of the riyal, which caused a significant rise in prices.
In turn, Dr. Muhammad Qahtan, professor of economics at Taiz University, says, “Before the war, Yemeni oil and gas revenues and exports covered about 70% of public spending in the general budget and about 90% of exports abroad, and they constitute the main source of income from foreign currencies and the cash liquidity that state institutions need.”
He added to Al Jazeera Net that “stopping these exports greatly affected the state’s income, which was unable to fulfill its obligations to operate its institutions and continue to pay the salaries and wages of employees, and without Saudi grants and foreign aid, it would not have been able to cover the monthly salaries.”
The Yemeni academic explained, “Restoring the export of oil and gas will have a major impact on the recovery of the economic situation, and the state’s foreign exchange revenues flowing to the central bank will return to capacity in the face of the collapse of the riyal’s exchange rate against foreign currencies.”
Regarding solutions, Qahtan stated, “If the government cannot export oil, it must adopt austerity policies, stop disbursing salaries and pensions to employees of state institutions spent in hard currencies, reduce spending on the diplomatic corps, stop resources on luxury goods, and limit foreign expenditures for scholarships, health, and travel.” And the return of all government employees to the country in order to ease the pressure on the demand for foreign currencies.”
He recommended the necessity of operating oil refining stations in Aden, Ma’rib, and Hadramaut, stopping the import of oil derivatives from abroad, eliminating currency speculation, preventing its leakage outside the areas of the legitimate government, and confronting obstacles to investment in the country.
To deal with the current economic situation, Qahtan suggested that “the countries supporting the government pump all military salaries to the Central Bank and provide grants of no less than $5 billion to the bank, as they are responsible for this economic collapse.”
Urgent situation
As a result of the major financial crisis that the government is facing with no alternatives, there are those who stress that the solution to the foreign exchange crisis depends on the necessity of re-exporting oil.
In this context, Wafiq Saleh, a journalist specializing in economic affairs, says, “The cessation of oil exports led to a scarcity of foreign exchange and the state incurred financial losses estimated at about 6 billion dollars, due to depriving the country of the only source of hard currency.”
He added to Al Jazeera Net, “The situation currently requires urgent efforts to re-export crude oil and liquefied natural gas in order to supply the state with hard currency, supply the local market with foreign exchange, achieve a balance between supply and demand, protect the riyal from collapse, and restore stability to the collapsed economic situation.”
The Yemeni journalist warned that if the re-export of crude oil continues to falter, this may lead to a further deterioration in the price of the riyal.
He recommended that the government find alternatives to deal with the current situation, such as restarting important economic institutions such as the Aden Refineries Company to provide financial revenues that could reach billions of dollars annually, thus covering its financial expenses and paying employees’ salaries.
