Yemen Embroiled in an International Struggle for the Red Sea

"Qahtan: 'Drowning in the quagmire of division, exacerbating currency depreciation and levels of poverty'"
February 20, 2024

Yemen Embroiled in an International Struggle for the Red Sea

"Qahtan: 'Drowning in the quagmire of division, exacerbating currency depreciation and levels of poverty'"
February 20, 2024

The escalating events in the Red Sea and Bab al-Mandeb have captured the attention of Yemenis and all countries in the world alike. This comes at a time when the severity of the economic crises in Yemen has intensified, particularly with the rapid deterioration of the local currency in the internationally recognized government-controlled areas, which is witnessing continuous instability. This surge has imposed catastrophic burdens and consequences on the national economy and various aspects of livelihood. Consequently, the Aden Chamber of Commerce and Industry has urged the Arab coalition states, namely the Kingdom of Saudi Arabia and the United Arab Emirates, to intervene in supporting the economy and the currency to halt their decline and deterioration.

Amidst the escalating events observed in the Red Sea, Bab al Mandeb, and the Gulf of Aden regions, there has been a notable surge in the exchange rate of the Yemeni rial, particularly evident in Aden and areas administered by the internationally recognized government. This increase coincides with recent leadership changes, notably the appointment of Ahmed bin Mubarak as the new prime minister, succeeding Ma'een Abdulmalik. However, subsequent to this transition, the exchange rate has surpassed approximately 1600 Yemeni rials per US dollar. In contrast, within areas controlled by Ansar Allah (the Houthis), the exchange rate remains fixed at 553 Yemeni rials per US dollar.

Economic expert Mohammed Ali Qahtan - Professor of Economics at Taiz University

In this context, "Khuyut" endeavors, through this dialogue with the economic expert Mohammed Ali Qahtan, Professor of Economics at Taiz University, to provide an in-depth analysis of all these escalating events within Yemeni waterways, the compounded crises, the underlying causes of the continuous currency instability and turbulence, the burdens it imposes on the deteriorating livelihoods of citizens, the failure of various solutions to control exchange rate volatility, and the approach to events in maritime passages and their consequential impact on the internal situation in Yemen.

We want to start by addressing the developments unfolding in the maritime passages of Yemen, which cannot be overlooked as they dominate current discussions. As you are aware, there is extensive debate surrounding the escalating events in the Red Sea, Bab al-Mandeb Strait, and the Gulf of Aden. What is your analysis of the situation?

Certainly, what is happening is of concern to all countries around the world. There are numerous impacts on global markets and trade, most notably the increase in the cost of insurance for maritime transportation through the Bab al-Mandab strait. However, from my perspective, I see that what is happening serves as a pretext for intensifying the military presence of colonial powers scattered in the Red Sea, foremost among them the United States, with the aim of hindering the global trade and investment expansion led by China through its massive project, the Belt and Road Initiative, which it has been implementing since 2003. This initiative aims to connect the global economy with a network of land and maritime routes to the Chinese economy, and to end American dominance over the global economy.

Moreover, the colonial powers led by the United States can also exploit the actions of the Houthi forces to implement their plans aimed at marginalizing the Bab al-Mandab strait by redirecting maritime trade movement to alternative routes under their control, such as the project route linking Asia and Europe through the Mediterranean Sea (the India-Europe route) and reactivating the Cape of Good Hope route. This is due to the Gulf countries, especially Saudi Arabia, shifting eastward through bilateral cooperation with China and Russia and their joining, along with other countries in the region, in the BRICS organization. This move has the potential to dismantle American dominance over the Gulf states and weaken its ability to exploit the region's resources.

The Repercussions on Yemen

How can you provide us with a closer understanding of what is happening at the internal level, and the impact of its consequences on Yemen?

It is no secret that the Yemeni people are the most affected by the escalating events in the maritime passages. Yemen is going through extremely difficult circumstances due to the ongoing war and its devastating effects on economic and humanitarian situations. The actions being taken will only victimize the Yemeni people further, with increased difficulty in importing goods. Yemen is primarily a consuming country, heavily reliant on imports from foreign markets. So, if international traffic through the Bab al-Mandab Strait is restricted, it will lead to further collapse of Yemen's foreign trade and consequently exacerbate economic and humanitarian deterioration. Thus, prolonging the war with new obstacles in international trade between Yemen and the external world will dissipate hopes of ending the war, achieving peace, and restoring normal life for the inhabitants of this impoverished and devastated country, resulting in further deterioration and ongoing crises.

“The division is considered one of the main reasons for the exacerbation of economic crises from various perspectives, as Yemen suffers from the split of the Yemeni state between two authorities; one centered in Sana'a and the other in Aden, due to the ongoing war and conflict since 2015. This has resulted in profound effects on various political, economic, and social conditions.”

In general, I perceive that there are ramifications and effects that could reach Yemen due to the ongoing Israeli war on Gaza in Palestine. If its escalation continues, as witnessed recently, it would be catastrophic for Yemen. Besides, the humanitarian aid would further diminish, and the prices of petroleum derivatives and food commodities could rise significantly, profoundly impacting the food aspect. Consequently, the number of people in need of humanitarian assistance is expected to increase. Currently, the number of people unable to meet their nutritional needs is estimated to be over 18 million, and this number could increase significantly. Therefore, Yemen may be engulfed in a severe famine crisis.

Hence, all of this imposes on Yemeni political forces, whether those holding authority in Aden or those holding authority in Sana'a, the urgency to expedite efforts to bring an end to the war, achieve peace, and earnestly address the political and economic division to confront the current situation and the anticipated developments.

Currency, Division, and Crises

Yemen is undergoing numerous economic crises that worsen over time, significantly impacting the livelihoods and lives of Yemenis. In your expert opinion, what are the most important reasons for this?

Of course, the division is considered one of the most significant reasons for this from several perspectives; Yemen suffers from the division of the Yemeni state between two authorities; one centered in Sana'a and the other in Aden, due to the ongoing war and conflict since 2015, which has had profound effects on various political, economic, and social conditions.

What are the most significant economic effects of this?

Firstly, on the financial side, the war has led to a pronounced division in the state's financial apparatus, resulting in the suspension of the implementation of unified financial laws. The Sana'a authority has established its own financial system, utilizing all revenue sources under its control to serve the military efforts of the Houthi-affiliated forces. Consequently, the Sana'a authority has refrained from addressing the payment of salaries to employees under its control, resulting in the stagnation of the economic and social development. On the other hand, areas under the authority of Aden have not been able to rebuild the financial apparatus after its collapse, leading to widespread chaos and corruption in various revenue channels under its influence.

All of this has deepened the division within the state's financial apparatus, with both Sana'a and Aden losing the ability to formulate general state budgets. This complicates the ability to address economic fluctuations from the perspective of implementing financial policy tools. As a result, the state as a whole, throughout Yemen, has become financially incapable of fulfilling its obligations as governing authorities.

Secondly, on the banking side, the division has led to the existence of two central banks; one in Sana'a and the other in Aden, resulting in a split in the banking system and currency. This fragmentation has led to multiple exchange rates for the Yemeni rial and the collapse of the banking system. With this collapse, the state lost control over the monetary market, causing turmoil and the devaluation of the national currency against other currencies. Additionally, the division has resulted in the existence of two exchange rates for the Yemeni rial. This has disrupted the economic cycle, as the banking system is considered the center of this cycle. So with its collapse, the economic cycle has stalled, household income has eroded, and exchange processes in domestic markets between areas under the influence of Sana'a and those under the influence of Aden have become complicated. Consequently, the economic and humanitarian situation has deteriorated, with people's conditions worsening over time as the war continues.

Oil Revenues & Employee Salaries

There is also a recent conflict focused on oil exportation and revenue sharing for paying employee salaries, following the Houthi targeting of government-recognized internationally exporting ports with drones at the end of 2022. What are the most likely repercussions of this?

In fact, this has had a profound impact on the balance of payments, leading to further deterioration in the national economy. Yemen's oil and gas exports, which accounted for around 90% of total Yemeni exports, ceased. Consequently, the state's foreign currency reserves were depleted, rendering it unable to meet its external obligations, particularly in covering import requirements. This has led to numerous economic repercussions, including a significant increase in Yemen's balance of payments deficit, difficulties in importing essential goods, reliance on foreign aid and grants, and an unprecedented deterioration in both economic and humanitarian conditions. Besides, Yemen is now described as having the worst humanitarian crisis globally.

What about the investment aspect?

The division has resulted in stagnation of local investments, hindrance of new investment inflows, and making it difficult for foreign investments to return, leading to further economic collapse and deterioration of the living and humanitarian conditions for the Yemeni population. All of this has significantly exacerbated unemployment and poverty rates to unprecedented levels. In addition, job opportunities, as well as individual and familial incomes, have sharply declined.

In your opinion, how have the recent calls for salary increases in the judiciary sector been like throwing a stone into stagnant waters, while the demands still remain limited to disbursing salaries that have been suspended for years or addressing the disturbance in the disbursement of salaries according to the pre-war salary scale in 2014?

Actually, raising salaries within the judiciary sector would have ramifications across other state institutions. It would entitle all employees to receive similar bonuses and allowances to cope with the rise in prices of goods and services and the erosion of income value for state employees and others with limited incomes, who constitute the vast majority of society. In our opinion, adopting a policy to partially meet demands by raising salaries would have even worse economic and livelihood impacts.

Accordingly, inflation rates will continue to rise, indicating further imbalance and deterioration. Therefore, we urge the government to promptly address the depreciation of the exchange rate by implementing a range of fiscal and monetary policies to restore the Yemeni rial against other currencies. There is potential to control the depreciation of the currency, which would have positive implications across various levels. As a result, the salaries of employees and the income of those with limited incomes would improve by more than 60% compared to their current status. This would enhance the livelihoods of all state employees and citizens, leading to positive impacts on the economic and social situation and ending the stagnation in the national economy. So, Will the government heed these directions instead of plunging the country into further economic and humanitarian complications through unrealistic approaches that only exacerbate the situation?

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