This is the third installment in our series about Yemen's economic crisis. Read the previous pieces on the currency crisis and Yemen's pre-war economy, here and here. 

While Yemen appears to be a united entity on a map, delineated by clear national borders and stretching from the Red Sea to Saudi Arabia to Oman, in reality Yemen is divided into a shifting array of regional power centers. Local groups, including tribes, local governorate governments, the Ansar Allah movement (commonly known as the Houthis), President Hadi’s central government in exile, and the UAE and Saudi militaries, control different regions, making up war-torn Yemen’s new geography of political and economic power. Since the war began, and indeed since former president Saleh’s patronage system dissolved, political power has become increasingly decentralized to the extent that each local group acts as a mini-state, controlling taxes, services, and trade within the region under its control. This patchwork of small state-like entities is characteristic of anarchic states created by civil wars: A country in the throes of civil strife is often divided “among competing local centers of power.”[1]  Wars substantially restructure society, weakening some groups while empowering others. These groups’ newfound power can be used to protect economic benefits or extract them.[2]

As the crisis in Yemen approaches its fifth year, wartime economic opportunities have entrenched themselves in the political economy of Yemen. While the previous blogpost in this series described the precariousness of most Yemenis’ everyday economic wellbeing and very survival, it is equally true that certain individuals and groups have been able to profit from the conflict. Typically, economic gains during any civil war can be made from pillage, from charging ‘protection money’ and from control of land, labor, aid, and trade.[3] As long as they exist, these economic opportunities represent disincentives to negotiation for the same powerful parties whose buy-in is essential for a peaceful resolution to the war. In long enduring crises, such as the war in Yemen, those that wield significant influence and access to resources are “often opposed to the settlement of the crisis as it would erode their power basis."[4] Parties that were once marginalized under the centralized government, such as the Houthis and the governorates, are now empowered by the newfound resources under their control during wartime.[5]

For the first time in more than a decade, the Houthis have a reliable stream of income. Most of this income is derived from taxation of local businesses and the customs duties of the ports under their control, Hudaydah and Saleef. Anecdotally, it is also thought that Houthi leaders control multiple smuggling routes for fuel, earning significant revenues by selling fuel to state fuel stations and into the black market.[6]

Two governorates, Hadhramawt and Marib, have what are in effect independent central banks, managing their own finances.[7] Both of these governorates have lucrative industries which local governments have taken control over, keeping revenues close to home. Currently governed by tribal leader Sultan Al-Aradah, Marib Governorate is host to oil and gas reserves, which have continued extractive operations throughout the conflict. The capital city of Marib Governorate has remained relatively stable amidst the war. In the event of a peace deal, Sultan Al-Aradah would have to accept the terms of a central  government which is likely to demand control of Marib’s oil and gas resources.[8] This is relevant because one of the factors that precipitated the current war was the central government’s proposal of a new, federal constitution for Yemen. While the model promised some devolution of power to the governorates and regions, the constitution did not include a system for local control over oil and gas revenues, and stakeholders in resource-rich places like Marib were skeptical that the central government would offer acceptable terms. Such issues have been drivers of continuing intra-state conflict in other newly-federated countries, such as Iraq.

In Hadhramawt Governorate, the largest province in Yemen, the lucrative Mukalla Port has been the subject of fighting between AQAP and UAE-backed forces. When AQAP forces seized the province and its profitable port in 2015 as war enveloped the country, it reportedly raked in $2 million per day by taxing companies and goods coming through the port. With these revenues, AQAP apparently began providing residents with drinking water, electricity, healthcare, and other basic services. When Yemeni government forces--backed by the UAE--reclaimed Mukalla from AQAP, they reportedly paid off AQAP to retreat. The new local government acquired control over customs at the port, revenues which it reportedly has not been distributing to residents in the form of basic services. Just as in Marib, a successful peace deal would likely remove control over these revenues from the hands of local governors.

Since AQAP’s withdrawal from Hadhramawt, the Hadi government has negotiated oil sales from oil fields in Hadhramawt to foreign companies. In this way, the Hadi government has been able to extract revenues from oil sales and put them in Saudi Arabia’s National Commercial Bank, with very little oversight.[9] An interim administration set up by the United Nations peace process would insist on oversight of and access to oil revenues, which would likely be uncomfortable for the Hadi regime.  

The trade routes in Yemen, many beginning in Oman or Saudi Arabia, pass through multiple regions under the control of different local groups. While these groups have control of the trade routes, they permit the safe passage of goods--for a price. Local traders estimate that the various taxes groups extract in exchange for safe passage (the “checkpoint fee”) increase the price of goods by 10-15 percent.[10] Several of these groups appear to be taking advantage of insecurity and violence to extract revenue from lucrative trade routes, a system which would likely be more regulated in the event of a peace settlement.

National powers in the Gulf region also have seized access to economic resources during the conflict. In the chaos of the war, Saudi Arabia and the UAE may be using the conflict to gain power and economic influence in the country. The conflict in Yemen is part of the United Arab Emirates’ wider regional ambitions that involve gaining control of several regional ports in Somaliland, Djibouti, and Eritrea, as well as Yemen. Saudi Arabia, which has long considered Yemen its “little brother,” has wielded its influence to gain local allies, and appears to be building a new corridor to the coast that mimics the ancient incense trade route. Thus, the conflict has created ample opportunity for the UAE and Saudi Arabia to advance economic agendas. The two Gulf countries are also able to advance international political agendas: As long as the Saudi-led coalition appears to be combating US enemies such as AQAP and allies of Iran, they can be secure in maintaining a strong economic and military relationship with the US.

The wartime economy has also been a source of employment and economic opportunity for ordinary Yemenis. More than a million people who used to hold regular employment have not been paid for two years.[11] With the formal economy almost completely dissolved, how do ordinary Yemenis survive? The limited options available to most Yemenis include living off remittances of connections living abroad or joining a militia. In an interview, Helen Lackner, the author of Yemen in Crisis: Autocracy, Neo-liberalism, and the State, pointed out that the “majority of foot soldiers are not there out of ideological commitment, the majority are there because they want money to feed their families.” As an important source of employment, militias further splinter the loyalties of Yemenis, feeding into the divisions of the country.

These economic disincentives for different groups to come to a peace settlement pose significant challenges for prospects for peace and reconstruction. As the September UN negotiations between the Houthis and the Hadi government, overseen by UN Special Envoy Martin Griffiths, draw closer, the question remains if the parties will be willing to halt the fighting, when the war has been lucrative for a select few power brokers. Some of the dynamics of reconstruction will be discussed in the next—and final—blogpost of this series.

***

[1] Vayrenen, Raimo. "Weak States and Humanitarian Emergencies: Failure, Predation, and Rent-Seeking" in War, Hunger, and Displacement: The Origins of Humanitarian Emergencies, Vol. 2. United Nations University WIDER Studies in Development Economics, 2000. 

[2] Vayrenen, Raimo. "Weak States and Humanitarian Emergencies: Failure, Predation, and Rent-Seeking" in War, Hunger, and Displacement: The Origins of Humanitarian Emergencies, Vol. 2., p. 456. 

[3] Keen, David. "War, Crime, and Access to Resources" in War, Hunger, and Displacement: The Origins of Humanitarian Emergencies, Vol. 2. United Nations University WIDER Studies in Development Economics, p. 289. 

[4] Vayrynen, Raimo, "Weak States and Humanitarian Emergencies," 81.

[5] For a more in-depth analysis of the economic disincentives for agreeing to a peace settlement among different actors, see Peter Salisbury, who has written extensively about the political economy of Yemen, especially in “National Chaos, Local Order” and “Yemen and the Business of War,” texts that are heavily cited in this piece.

[6]  Salisbury, Peter. "National Chaos, Local Order," Chatham House, 2017, p. 28. 

[7] Salisbury, Peter. "National Chaos, Local Order," 8-9.

[8] Salisbury, Peter. "National Chaos, Local Order," 8-9.

[9] Salisbury, Peter. "Yemen and the Business of War," The World Today: Chatham House (August & September 2017). 

[10] Salisbury, Peter. "National Chaos, Local Order," 25. 

[11] Lackner, Helen. Yemen in Crisis: Autocracy, Neo-Liberalism and the Disintegration of a State. Saqi, 2017, p. 215.