Yemen’s War Profiteers Are Potential Spoilers of the Peace Process

Yemen’s War Profiteers Are Potential Spoilers of the Peace Process

Sana’a Center Editorial

Even as economic and state collapse have propelled millions of Yemenis toward famine, the war economy that has developed over almost four years of conflict has also allowed a select cadre of individuals to become incredibly wealthy. These people – many of whom hold the highest positions of authority on either side of the frontlines, and indeed often cooperate with each other across those frontlines – have little incentive to end the war. As such, there is a high likelihood that they will act as spoilers in any peace process, such as that which the United Nations Special Envoy for Yemen, Martin Griffiths, is currently pursuing at talks between the warring parties in Sweden. A successful outcome of any peace efforts in Yemen requires that these war profiteers are taken into account. Measures must be introduced – such as sanctions – to counter these individuals’ incentive and ability to continue the war, or to try to destabilize the country in the event that a peace agreement is signed.

As a year-long Sana’a Center investigation found, perceived adversaries in Yemen’s war have often cooperated for personal profit. Over the past three and a half years, and under the cover of violence and failing diplomacy, complex and fluid networks of corruption have transcended active frontlines. Among the clearest example of this has been the flow of Saudi-led military coalition weapons to Houthi forces. At the heart of this particular money-making scheme are senior Yemeni anti-Houthi military commanders on the Saudi or Emirati payroll. After vastly inflating the number of soldiers in their ranks to receive excess salaries and armaments from their patrons, they then sell their weapons surplus across the frontlines to the same Houthi forces they are meant to be fighting.

The weapons are transported from areas nominally under the control of the government to Houthi-controlled areas through formal and informal corridors, including via desert tracks in Mahra, Hadramawt, and Shabwa governorates. This requires local, expert knowledge of the terrain, and many greased palms along the way. Ultimately though, as long as each party is paid their share – from arms dealers to those driving the trucks and individuals stationed along the road manning checkpoints – then arms sales run smoothly, no matter the destination..

These networks of corruption extend beyond Yemen’s borders. A telling example is the prevalence of fuel import deals that involve cheap, low quality Iranian fuel that is transshipped via the United Arab Emirates or Oman before arriving to Yemen, where the fuel is then sold on the local market at a hefty markup. These deals, like all other fuel shipments to Houthi-controlled ports, are effectively agreed in Sana’a and signed off on in Riyadh.

The plot thickens further still when it comes to financial flows and external money transfers. To pay fuel exporters and brokers located outside Yemen, certain Yemeni fuel importers – particularly those that have risen in clout since 2016 – have turned to informal financial networks, and specifically the services provided by money exchangers. Fuel importers desperate to get their hands on foreign currency at any price are thought to be among the biggest factors depressing the rial’s value, which is in turn the primary catalyst for the spreading famine.

The new business elite and the informal financial networks that aided their rise appeared to come under threat recently, owing to new food and fuel import regulations that the Economic Committee introduced in September 2018 under the authority of the Central Bank of Yemen (CBY) in Aden. Early indicators suggest, however, that these regulations have simply forced an adaptation to new forms of business relations and activity. Partnerships are being formed amongst importers that can meet the necessary requirements and those that cannot. The fact is that the more profitable Yemeni markets are in Houthi-controlled areas, where an estimated 70 percent of the population resides. Those seeking to profit from this war have proven themselves adept at working around new restrictions. This is how the war economy has evolved to where it is today.

In September 2018, UN Special Envoy Martin Griffiths declared his intention to place greater emphasis on addressing Yemen’s economic crisis, acknowledging the direct, catastrophic impact that Yemen’s economic decline is having on the lives and livelihoods of Yemeni people. This declaration, which occurred at a time in which the local currency was in an unprecedented free fall, is undoubtedly a step in the right direction. What is also needed, however, is a greater emphasis on identifying the key figures on all sides who are profiting from this war, the networks through which their finances flow, and the points of leverage that can be brought to bear upon them. Without reining in the influence of the war profiteers, the chances of achieving peace are grim.

 

For more details, please see The Yemen Review – November 2018

The Yemen Review –  November 2018

The Yemen Review – November 2018

Residents in the Tha’abat area of Taiz City inspect a home in November that was damaged by shelling from Houthi forces // Photo Credit: Anas Alhajj

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Executive Summary

Representatives from Yemen’s warring parties sat at a negotiating table for the first time in more than two years at the beginning of December. The peace consultations – which took place in Sweden and were mediated by the United Nations Special Envoy for Yemen Martin Griffiths – followed international pressure for a ceasefire that began in October and intensified through November.

Rifts between Saudi Arabia and its most important ally, the United States, over the former’s intervention in the Yemen conflict appeared to deepen last month with the announced end of US in-flight refueling for Saudi-led military coalition aircraft operating over Yemen, and a vote in the US Senate to debate a bill to suspend military assistance to the coalition. Various governments in Europe also took steps toward banning arms sales to members of the coalition.

United Nations Security Council (UNSC) member states began negotiating a new draft resolution related to the Yemen conflict in November, calling for measures to de-escalate the war and address the humanitarian crisis. This was the first proposed UNSC resolution related to Yemen since April 2015. Lobbying from Saudi Arabia and the United States, however, appeared to postpone any vote on the text at least until after the negotiations in Sweden.

In Yemen, the domestic currency rebounded sharply in value against the US dollar in November after a steep collapse in the months previous. While this had the potential to help mitigate the humanitarian crisis, most of the benefits of the Yemeni rial’s recovery were absorbed before they reached consumers. Acting as a cartel to manipulate the currency market, money exchangers profited significantly from the Yemeni rial’s appreciation and most commercial retailers refused to lower prices to match the rial’s recovery. Meanwhile, international humanitarian organization Save the Children released an estimate that some 85,000 children had died of hunger in Yemen since the conflict began.

In military developments, a spike in violence around Hudaydah City at the beginning of November sparked a surge in suspected violations of humanitarian and international human rights law by the warring parties involved. Elsewhere, anti-Houthi forces made battlefield gains on multiple frontlines in both the north and south of the country.

Also in November, one of the main fissures in the anti-Houthi coalition appeared to mend somewhat. Following a visit by representatives of Yemen’s Islah party to Abu Dhabi, it appeared that the party had reconciled long-standing differences with the United Arab Emirates. Despite this, however, tensions between UAE-backed forces and Islah partisans once again erupted in Taiz governorate, including a spree of tit-for-tat assassinations.


The Sana’a Center Editorial

Yemen’s War Profiteers Are Potential Spoilers of the Peace Process

Even as economic and state collapse have propelled millions of Yemenis toward famine, the war economy that has developed over almost four years of conflict has also allowed a select cadre of individuals to become incredibly wealthy. These people – many of whom hold the highest positions of authority on either side of the frontlines, and indeed often cooperate with each other across those frontlines – have little incentive to end the war. As such, there is a high likelihood that they will act as spoilers in any peace process, such as that which the United Nations Special Envoy for Yemen, Martin Griffiths, is currently pursuing at talks between the warring parties in Sweden. A successful outcome of any peace efforts in Yemen requires that these war profiteers are taken into account. Measures must be introduced – such as sanctions – to counter these individuals’ incentive and ability to continue the war, or to try to destabilize the country in the event that a peace agreement is signed.      

As a year-long Sana’a Center investigation found, perceived adversaries in Yemen’s war have often cooperated for personal profit. Over the past three and a half years, and under the cover of violence and failing diplomacy, complex and fluid networks of corruption have transcended active frontlines. Among the clearest example of this has been the flow of Saudi-led military coalition weapons to Houthi forces. At the heart of this particular money-making scheme are senior Yemeni anti-Houthi military commanders on the Saudi or Emirati payroll. After vastly inflating the number of soldiers in their ranks to receive excess salaries and armaments from their patrons, they then sell their weapons surplus across the frontlines to the same Houthi forces they are meant to be fighting.

The weapons are transported from areas nominally under the control of the government to Houthi-controlled areas through formal and informal corridors, including via desert tracks in Mahra, Hadramawt, and Shabwa governorates. This requires local, expert knowledge of the terrain, and many greased palms along the way. Ultimately though, as long as each party is paid their share – from arms dealers to those driving the trucks and individuals stationed along the road manning checkpoints – then arms sales run smoothly, no matter the destination..

These networks of corruption extend beyond Yemen’s borders. A telling example is the prevalence of fuel import deals that involve cheap, low quality Iranian fuel that is transshipped via the United Arab Emirates or Oman before arriving to Yemen, where the fuel is then sold on the local market at a hefty markup. These deals, like all other fuel shipments to Houthi-controlled ports, are effectively agreed in Sana’a and signed off on in Riyadh.

The plot thickens further still when it comes to financial flows and external money transfers. To pay fuel exporters and brokers located outside Yemen, certain Yemeni fuel importers – particularly those that have risen in clout since 2016 – have turned to informal financial networks, and specifically the services provided by money exchangers. Fuel importers desperate to get their hands on foreign currency at any price are thought to be among the biggest factors depressing the rial’s value, which is in turn the primary catalyst for the spreading famine.

The new business elite and the informal financial networks that aided their rise appeared to come under threat recently, owing to new food and fuel import regulations that the Economic Committee introduced in September 2018 under the authority of the Central Bank of Yemen (CBY) in Aden. Early indicators suggest, however, that these regulations have simply forced an adaptation to new forms of business relations and activity. Partnerships are being formed amongst importers that can meet the necessary requirements and those that cannot. The fact is that the more profitable Yemeni markets are in Houthi-controlled areas, where an estimated 70 percent of the population resides. Those seeking to profit from this war have proven themselves adept at working around new restrictions. This is how the war economy has evolved to where it is today.

In September 2018, UN Special Envoy Martin Griffiths declared his intention to place greater emphasis on addressing Yemen’s economic crisis, acknowledging the direct, catastrophic impact that Yemen’s economic decline is having on the lives and livelihoods of Yemeni people. This declaration, which occurred at a time in which the local currency was in an unprecedented free fall, is undoubtedly a step in the right direction. What is also needed, however, is a greater emphasis on identifying the key figures on all sides who are profiting from this war, the networks through which their finances flow, and the points of leverage that can be brought to bear upon them. Without reining in the influence of the war profiteers, the chances of achieving peace are grim.     


UN-led Peace Talks Restart As Security Council Seeks New Yemen Resolution

Special Envoy Brings Warring Parties to Sweden

For the first time in more than two years, representatives from Yemen’s warring parties – the armed Houthi movement and the internationally recognized Yemeni government – sat together at a negotiating table in early December. The meeting – mediated by the UN Special Envoy for Yemen Martin Griffiths – took place in Rimbo, north of Stockholm, Sweden, with the stage for such having been set during the previous month.

On November 16, the United Nations Special Envoy for Yemen Martin Griffiths had briefed the UN Security Council about his intention to try and bring the parties together. Griffiths said that a window of opportunity had been created by the increased international and UN focus on Yemen and calls for a ceasefire, and the urgency of the moment, given that Yemen was slipping toward the largest famine the world has seen in generations. Following a spike in clashes in and around Houthi-held Hudaydah City in early November, the Special Envoy told the Security Council these had diminished again (see below Coalition Presses, Then Halts, Hudaydah Offensive). This followed international pressure on the Saudi-led military coalition refrain from an attack on the port.

In September this year, Griffiths had tried to stage peace consultations between the warring parties in Geneva, with these talks then being canceled at the last minute due to a logistics impasse between the warring parties related to the Houthi delegation traveling to the talks. This time, the Special Envoy told the council that the Saudi-led military coalition had agreed to his suggested logistical arrangements, and the coalition and Oman had offered to facilitate the medical evaluation of some 50 injured Houthi fighters out of Sana’a. When the Houthi delegation actually did leave Sana’a on December 4 aboard a Kuwaiti airliner, Griffiths himself was also on board as reassurance for the Houthi officials that the Saudi-led military coalition, which controls Yemeni airspace, would not intercept the flight.

In the November 16 UNSC briefing, the Special Envoy said he was pursuing confidence-building measure between the two parties, including a prisoner swap. Indeed, on the first day of the talks, December 6, the Houthis and the Yemeni government agreed to swap thousands of prisoners. Other efforts by Griffiths included the reopening of Sana’a airport, and the de-escalation of hostilities around Hudaydah port and city by turning the port over to UN administration. The port, through which more than 70 percent of Yemen’s commercial and humanitarian cargo passes, is considered crucial to addressing the humanitarian crisis.

Following his November 16 briefing, the Special Envoy traveled to Sana’a where he met with the Houthi leadership to discuss the planned consultations in Sweden. He then moved on to Hudaydah on November 23, along with Lise Grande, the UN Humanitarian Coordinator, and the Stephen Anderson, The World Food Programme country Director of Yemen. From Hudaydah, Griffiths’ office released a statement noting that the UN delegates had reached an agreement with the Houthi leadership regarding UN administration of the port. The Saudi-led military coalition continued to maintain, as of this writing, that it would only accept UN administration of the port if Houthi fighters left Hudaydah.

UN Security Council Negotiates Resolution on Yemen

For the first time since adopting Resolution 2216 in April 2015, the UNSC introduced a new draft resolution for the council to consider and negotiate. The UK, penholder of the Yemen file at the council, led the drafting of the resolution on November 1, in consultation with the US. Top US and UK officials had, days earlier, called for the warring parties in Yemen to enter a ceasefire and for a new round of UN-led peace consultations.

The UK draft text of the resolution called for a cessation of hostilities and for the implementation of the October 23 recommendations that Mark Lowcock, UN Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator, had made to the Security Council. (These included ending hostilities around infrastructure crucial for aid operations and commercial imports; protecting food supply chains throughout the country; rapidly injecting more foreign currency into the economy through the central bank; increasing funding for aid operations; and calling on the belligerent parties to engage with the UN Special Envoy’s peace efforts.)

On November 12, UK Foreign Secretary Jeremy Hunt travelled to Riyadh and Abu Dhabi to support the UN-led peace consultations and the UK’s efforts at the UNSC. Hunt met with, among others, Saudi King Salman Bin Abdulaziz al-Saud, his son Crown Prince Mohammed bin Salman, and the Crown Prince of Abu Dhabi Mohammed bin Zayed Al Nahyan. As CNN later reported, Hunt – after consulting with US Secretary of State Mike Pompeo and French Foreign Minister Jean-Yves Le Drian – shared a copy of the draft resolution with the Saudi Crown Prince. According to the reports, bin Salman opposed the text. Hunt also urged Saudi authorities not to try and seek military victory, referring to the intensified offensive on Hudaydah last month. A week later the UK Foreign Secretary was also in Tehran to meet with his Iranian counterpart, Javad Zarif, to discuss the Yemen peace process.

On November 19, the UK circulated an updated draft UN Security Council resolution on Yemen, with minor changes from the first draft and with updates from the UNSC briefing on Yemen held on November 16. This text called for the halting of hostilities in Hudaydah governorate; an end to all attacks on densely populated civilian areas across Yemen; and the cessation of all missile and drone attacks against neighboring countries and maritime traffic, and that all domestic and regional parties to the conflict to de-escalate tensions and engage with the UN-led peace process. The text also called for rapid increased support for the Central Bank of Yemen, for quicker access for traders to import financing, and for payment of civil servant salaries across Yemen.

While the UK held strong on trying to keep the draft resolution without major changes and push it to the table for a vote, Sana’a Center sources stated the Saudis brought intense pressure to bear on Security Council member states against the resolution. On November 27, the US mission ask the council to hold off finalizing the draft resolution until after the peace consultations in Sweden. The US position, which won quiet support from several other nations, was that a resolution before the peace talks would likely have a negative impact on those talks, angering the Saudis and possibly undermining the commitments to attend, which the warring parties had made to the UN Special Envoy.

Sana’a Center sources noted that developments on the ground through November — such as Yemeni rial’s recovery (see below ‘Yemeni Rial Appreciates’) and the scaling down of the battle for Hudaydah — had also relieved the sense of urgency for some UNSC member states regarding a new resolution.

 

Pressure Mounts in US, EU to End Support for Saudi-led Coalition

US to Stop Refuelling Coalition Aircraft

On November 9, the Saudi-led military coalition announced that it would no longer require the US to provide air-to-air refuelling for their fighter aircraft operating over Yemen, saying that it now had the capabilities to do so independently. Sana’a Center sources indicated, however, that this Saudi announcement was a compromise to allow Riyadh to publically save face, and that the call to end US refueling support had originated in Washington. This US support had drawn criticism domestically, given its central role in facilitating coalition airstrikes, which the UN says have been responsible for the majority of civilian deaths since 2015 in Yemen’s conflict.

In a statement, Secretary of Defense Jim Mattis officially welcomed the Saudi announcement, saying that it would continue working with the coalition to “minimize civilian casualties and expand urgent humanitarian efforts,” while reiterating Washington’s support for the UN drive for fresh peace talks. The statement alluded to the growing bipartisan pressure in Congress regarding the US role in Yemen’s war, ranging from calls for greater congressional oversight, to demands for immediate cessation of all support for the coalition. NBC News quoted a senate staffer as saying that the decision was intended to pre-empt a more wide-ranging vote in Congress on US support for the Saudi-led military coalition, an assertion echoed by US-based analysts. However, while longtime opponents of US involvement in Yemen praised the development as a “major victory,” reports published following the announcement have questioned whether the move goes far enough to quell such opposition, given that the US continues to provide intelligence support, targeting assistance and weapons to the coalition.

While many news outlets covering the development said that the US refuels 20 percent of coalition aircraft, in a September 2018 report, The Intercept said that CENTCOM does not track refuelling in a way that allows for accurate data on the Pentagon’s contribution to the coalition air campaign.

Draft Legislation Takes Aim at US Support for the Saudi-led Military Coalition

On November 15, Democrat and Republican senators introduced a bill that would suspend weapons sales to Saudi Arabia and prohibit refueling of coalition aircraft. The sponsors of ‘The Saudi Arabia Accountability and Yemen Act of 2018’ (S.3652) – which include Ranking Member of the Senate Foreign Relations Committee, Senator Bob Menendez (D-NJ) – said the legislation was introduced in response to the killing of journalist Jamal Khashoggi at the Saudi consulate in Istanbul in October, as well as Saudi Arabia’s role in Yemen’s war.

On November 28, the Senate advanced a separate resolution that would end all US support for the Saudi-led military coalition in Yemen. Senate Joint Resolution 54 passed the first committee stage vote 63 to 37 – a turnaround from March, when the same bill failed to pass by a vote of 55 to 44. The bill invokes the 1973 War Powers Resolution – which asserts that Congress has the sole constitutional privilege to declare war – and calls for the end of US involvement in the Yemen conflict within 30 days, excluding operations against al-Qaeda in the Arabian Peninsula (AQAP).

Prior to the vote, Secretary of State Mike Pompeo and Secretary of Defense James Mattis privately briefed senators on America’s role in the Yemen conflict, urging them to reject the resolution. In comments to reporters, Pompeo said the “poorly timed” move would bolster Iran and undermine UN-backed peace talks expected for December. After the vote, the White House released a statement saying the president would likely veto the resolution if it were to pass the Senate after the next two votes – the first of which is expected to take place in early December. The administration called the legislation “flawed,” saying it does not reflect the limited involvement of the US in the conflict and disputes that this support is unconstitutional. It added that the bill would harm bilateral relationships with countries in the region, with knock-on effects for US counterterrorism efforts.

These legislative moves come on the heels of the US midterm elections, in which the Democrats took control of the House of Representatives, and the Republican Party retained control of the Senate. As the majority party in the House from January 2019, Democrats will occupy key leadership positions, exerting control over the bills that the House will consider, and amendments offered by representatives. The Democrats have vowed to establish greater oversight of President Donald Trump’s foreign policy, with hearings expected regarding support for the Saudi-led military coalition in Yemen. While Republican leaders this month blocked debate on House Resolution 138 – legislation that would force a congressional vote on the US role in the Yemen – the bill is likely to be reintroduced when the Democrats are in a stronger position from January 2019 (for more on the bill, see ‘The Yemen Review – September 2018’).

Also in the US last month, on November 11, senior Obama-administration officials released a strongly worded statement urging the US government to end all support to the Saudi-led military coalition in Yemen in light of the humanitarian impact of the conflict. The officials acknowledged that this support began under Obama’s presidency, but said that this was “not intended to become a blank check,” which they claim US-backing had become under the Trump administration.

EU Moves Towards an Arms Embargo on the Saudi-led Military Coalition

On November 14, the European Parliament adopted a non-binding resolution, calling for the implementation of a EU Common Position of 2008 which had set EU standards for the licensing and delivery of arms exports. The resolution also holds that exports to members of the Saudi-led military coalition are in non-compliance with these standards, therefore reiterating its call for the imposition of an EU arms embargo on Saudi Arabia and members of the Saudi-led military coalition. Although the Common Position is described as legally-binding, article 4.2 holds that “[t]he decision to transfer or deny the transfer of any military technology or equipment shall remain at the national discretion of each Member State.”  

In October, the killing of Saudi journalist Jamal Khashoggi in the Saudi consulate in Istanbul and the humanitarian impact of the Yemen war had fuelled discussions in Europe over arms exports to Saudi Arabia. Discussions continued throughout last month, with Norway, Denmark and Finland announcing they would halt arms export licenses to Saudi Arabia – and the United Arab Emirates (UAE) in regards to Finland – following a similar announcement by Germany in October. On November 19, the German government added it would also halt those arms exports to Saudi Arabia that had been approved prior to the October announcement.

MBZ Meets Macron in Paris, Protests Ensue

On November 21, the Crown Prince of Abu Dhabi, Mohammed bin Zayed Al Nahyan, visited Paris to meet with French President Emmanuel Macron, Prime Minister Édouard Philippe and foreign affairs minister Jean-Yves Le Drian.

Similar to when Saudi Crown Prince Mohammed bin Salman visited to Paris in April, bin Zayed’s trip triggered civil society activities related to the UAE’s military role in Yemen. Human Rights Watch called upon President Macron to raise concerns with the crown prince regarding war crimes in Yemen and to threaten to halt arms sales. Meanwhile, the human rights NGO International Alliance for the Defence of Rights and Freedoms (AIDL), along with six Yemeni nationals, filed a lawsuit against bin Zayed, accusing him of being complicit in torture and war crimes in Yemen as Deputy Supreme Commander of the UAE Armed Forces. AIDL also organized demonstrations in front of the UAE embassy in Paris on November 20.

Following the meeting between Macron and bin Zayed, France and the UAE issued a joint declaration in which the two announced their willingness to enhance bilateral cooperation, including in regional security issues. Regarding Yemen, they affirmed their support for the upcoming UN-led peace negotiations, as well as their general support for a political solution to the conflict and the importance of enhancing humanitarian access throughout Yemen. The declaration mentioned neither French arms sales to the UAE nor the latter’s military role in Yemen.


The Yemeni army’s First Brigade celebrates Independence Day in Aden on November 30, which commemorates South Yemen’s independence from British rule // Photo Credit: Ahmed Shihab Al-Qadi

Economic Developments

Yemeni Rial Appreciates Rapidly As Money Exchangers Cash-In

During November, the Yemeni rial (YR) hit unpredicted levels of appreciation, gaining value more rapidly, and for a longer period, than at any time since the conflict began. Between early August and end of October this year the currency had entered its steepest depreciation of the conflict, losing around 42 percent in value. November however, saw a turnaround: the rial was valued at YR750 per US$1 at the beginning of the month, but by month’s end, it was trading at YR380 per US$1 – a recovery of roughly 49 percent over this period and almost 22 percent on November 28 alone. By December 2, the rial had retreated again to YR480 per US$1. (In March 2015, when the regional intervention in the Yemeni conflict began, the rial was trading at YR215 per US$1.)

According to sources working in the exchange market who spoke with the Sana’a Center Economic Unit, the supply of rials in the parallel market has decreased lately as importers have increasingly been withdrawing liquidity from the exchangers to open letters of credit at the Aden-based Central Bank of Yemen (CBY). As an enticement to open these letters of credit and bring liquidity back into the formal financial networks, the Aden-based CBY has also been offering importers a preferential exchange rate relative to the parallel markets.   

As the rial appreciated in November, there was a rush in the market to exchange stored foreign currency holdings into domestic currency to stave off losses in the value of savings. The same sources said many money exchange outlets acted as a cartel to buy foreign currency out of the market at a premium – meaning at a rate better than what the Aden-based CBY was offering importers. This was a purposeful overvaluation of the rial intended to absorb citizens foreign currency holdings. Simultaneously, these exchange outlets temporarily refused to sell, or severely limited their sale of foreign currency back into the market, anticipating that the rial would lose value again.

On December 1, the rial depreciated – from YR380 per US$1 to YR460 per US$1 – allowing the money exchangers to sell their foreign currency again for significantly more rials than they had bought it last month.

    Source: Sana’a Center Economic Unit

 

Commercial Traders Maintain High Prices Despite YR Appreciation

In a country highly dependent on imports, the foreign exchange rate is closely correlated with basic goods prices. Prior to the conflict in 2015, Yemen imported almost 90 percent of its basic necessities from abroad, and since then the average price of the minimum food basket has increased 110 percent relative to the pre-conflict average, according to a recent World Food Programme report. Previous spikes in food commodity prices during the conflict were primarily due to the loss in domestic currency value.

In conjunction with the rial’s appreciation in value during the second half of November, commercial groups and companies announced new price lists for their products, most notably the Hayel Saeed Anam Group, which is Yemen’s largest importer of basic foodstuffs. Price reductions announced by this group ranged from roughly 10 to 23 percent for products including wheat flour, cooking oils, and soap detergents.

In attempts to regulate the price of goods following the rial’s appreciation, both the internationally recognized Yemeni government and the Houthi authorities issued detailed lists stipulating the maximum prices for various wholesale and retail commodities in their respective areas, while also implementing widespread campaigns to punish violators. On November 27, for instance, Houthi authorities closed four large shopping malls and many pharmacies in Sana’a that had been caught violating the price listings published by the Ministry of Industry and Trade. In Aden, the Bureau of Industry and Trade, under the Ministry of Industry and Trade, was tasked to monitor traders adherence to formally set-out prices. Despite such efforts, however, anecdotal reports from Sana’a and other areas indicated that many retailers did not lower their prices, while others had applied slight price cuts ranging from less than 5 to 10 percent – still far from matching rial’s recent appreciation. 

A common explanation among retailers for not applying price reductions was that their inventories were restocked or purchased when rial was declining in value over September and October, and thus at higher cost, and the higher prices are needed to recoup the difference. In reality, the absence of governing authorities to supervise and regulate prices has created a conducive environment for food traders to exploit, allowing them to manipulate prices and inflate their profit margins.

For instance, even with the Aden-based CBY’s importation mechanism to offer importers of selected basic foodstuffs a privileged exchange rate – lower than the parallel market rate – Yemeni citizens are not benefiting. Instead, commodity wholesalers and retailers are the main beneficiaries. According to traders based in Sana’a, retail shops were, as of the end of November, still selling commodities based on an exchange rate of YR800 per US$1, which was the exchange rate in early October when the rial had depreciated to record lows.

The intent of the CBY’s preferential exchange rate for financing imports is that it allow foodstuffs to be available on the market at reasonable prices. However, as long as the current scenario continues, the Aden-based CBY will continue depleting its foreign currency holdings without achieving its primary goal of maintaining price stability.

Thus, the Sana’a Center Economic Unit recommends that CBY establish a joint comprehensive mechanism for regulating the commodity market. This mechanism should offer a database and information on all the CBY’s financially-supported commodity foodstuffs, the size of these commodity stocks available in the market, and how long they are estimated to last, thus allowing a determination of fair retail prices for these commodities.

Factors Supporting the YR’s Appreciating Value:

  • Accelerated Import Financing, New Domestic Debt Issuance

On November 3, the Aden-based CBY announced it was finalizing a new round of basic import financing. This amounted to the allocation of US$170 million to support the importation of six food commodities at the special exchange rate of YR585 per US$1. The amount was broken down as follows: US$98.16 million for wheat, US$33.3 million for rice, US$20.37 million for sugar, US$12.72 million for edible oil, US$3.63 million for corn, US$1.72 million for milk. The CBY also stated that it had shortened the approval period for letters of credit to less than 15 days, a process that was previously regarded by importers as excessively long.

In a circular directed to Yemeni banks, dated November 18, the Aden-based CBY informed commercial banks that it had reached an agreement with the Saudi Arabian Monetary Agency (SAMA) to facilitate the transfer of their foreign cash holdings. Since early 2015, Yemeni banks have been unable to move their cash holdings of foreign currencies to their accounts abroad. According to the agreement, the Aden-based CBY would be responsible for transferring the banks’ accumulated stocks of foreign currencies to Jeddah, Saudi Arabia. If successful, such a move could allow the CBY to utilize such stocks to fund imports and ensure Yemeni banks have the capacity to facilitate global trade and financial transactions. In attempt to encourage this transition the central bank pledged, as a service to the banking sector, to bear all costs of the mechanism until sufficient liquidity had returned to the formal financial system and the monetary cycle had been regained.   

Furthermore, the Aden-based CBY, on behalf of the Ministry of Finance, had its first successful domestic debt issuance, using new rates and debt instruments the bank had announced in September this year. According to a well-placed source in the Aden banking sector who spoke with the Sana’a Center Economic Unit, the Aden-based CBY was able to sell YR100 billion in debt to a group of Yemeni commercial and Islamic banks. The move offers support for the government budget deficit from non-inflationary sources – a marked change for a government that, for most of the conflict, has been trying to cover expenses through simply printing more rials.   

  • Oil Grants and Lower Demand for Foreign Currency to Import Fuels   

While the Aden-based CBY and its associated Economic Committee have in recent months attempted to regulate fuels imports and curb fuel importers’ over-speculation in the exchange market, other recent oil-relevant developments last month also appear to have eased the downward pressures on the rial’s value.

On November 30, Saudi Arabia, under its Development and Reconstruction Program for Yemen, delivered the second instalment of its diesel and mazut fuel grant, worth US$60 million. This fuel is intended to allow power plants to operate and address the electricity shortages in Yemeni government held areas, potentially benefiting some 8.5 million people. This is in addition to the first Saudi fuel grant made available to the internationally recognized government at the end of this October, bringing the total fuel grants thus far to US$120 million.

In addition, there has been a recent decline in global oil prices, with the benchmark West Texas Intermediate crude declining some 19 percent, dropping from roughly US$64 per barrel on November 1 to almost US$51 as of month end.

The Sana’a Center Economic Unit last month ran a multi regression analysis on the correlation between fluctuations in global oil prices and the value of the Yemeni rial between January 2017 and October 2018. This analysis found that changes in both variables have strong positive and negative correlation. This supports the findings of a Yemeni Banking Association survey, published in October, in which bankers identified fuel importers’ demand for foreign currency as the primary factor influence the rial exchange rate.  

  • New Foreign Currency Support Announced

According to Sana’a Center sources, on November 30 the Aden-based CBY reached an agreement with the International Finance Corporation (IFC) to coordinate a grant worth US$500 million from several donors to facilitate a trade funding program for Yemen. To determine if Yemeni commercial banks’ eligibility to participate in the program, starting in February next year the IFC will initiate a comprehensive review of commercial banks’ procedures. This assessment will include the banks’ governance practices in regards to their board of directors and executive management structure, and compliance requirements related to anti-money laundering and counter terrorism financing.

Furthermore, on December 1 the Aden-based CBY governor, Mohammed Zemmam, told Yemeni News Agency (Saba) that the CBY is currently awaiting promises worth US$3 billion. Zemmam also told Saba News that “there is a set of decisions to be taken by the United Nations or some countries regarding the new deposits.”

If such grants materialized, they would play a crucial role in supporting local currency stabilization and would help mitigate Yemen’s widespread  humanitarian crisis. In September this Year, former CBY governor Mohamed bin Humam told the Sana’a Center that he estimated that US$4 billion was required for currency stabilization.

Commercial Banks Express Concerns Over New Import Financing Regulations

On November 12, Yemen Banks Association (YBA) sent a letter to the CBY Governor in Aden, Mohammed Zammam, outlining the difficulties commercial banks face in regards to underwriting letters of credit (LCs) for food and fuel importers using cash. As noted in the letter to the governor, the Economic Committee and Aden-based CBY are looking to enforce this measure – and are threatening fines for non-compliance – as part of the new import regulations included in Ministerial Decree 75, announced in September.

Meanwhile, on November 4, the Sana’a-based CBY issued a strongly-worded circular to commercial banks mandating that they use checks to pay for importer LCs, and warning them of the severe repercussions – including imprisonment of senior staff – should they do otherwise. A major concern of the Sana’a-based authorities is cash liquidity being drawn out of Houthi-controlled areas to Yemeni-government controlled areas.    

The cash liquidity crisis in Yemen – which set in dramatically through 2016 – resulted in domestic cash being overvalued in the market relative to checks. Forcing banks to supply cash to pay for importer LCs would thus pass on this overpricing, meaning importers, when they sold their foodstuffs on the market, would do so at higher prices to recoup the difference. Thus, regular consumers would not benefit from the Aden-based CBY’s preferential exchange rate for imports.

According to Sana’a Center sources, the Aden-based CBY as well as the Economic Committee were, as of this writing, working on a new mechanism to address this concern.

Houthi-run YPC Lowers Official Fuel Prices

Per official documentation that the Sana’a Center’s Economic Unit obtained, the Houthi-run Yemen Petroleum Company (YPC) ordered the reduction of official YPC petrol and diesel prices in Houthi-controlled areas on two separate occasions in late November. The first price reduction was declared on November 21 and came into effect two days later, with the price of petrol at YR10,000 per 20 liters. The price of diesel was set at YR10,600 per 20 liters. YPC declared further price reductions a week later on November 28. The new price of petrol at YPC fuel stations was set at YR8,700 per 20 liters, while the price of diesel was set at YR9,500. The latest price reductions are scheduled to be implemented on December 1. According to the official documents, the Houthi-run YPC lowered the price of petrol and diesel in response to the appreciation of the rial.

 

Military and Security Developments

Coalition Presses, Then Halts, Hudaydah Offensive

Heavy fighting took place in and around Hudaydah after the launch of a new offensive by anti-Houthi forces on the west coast port city on November 2. Following advances by coalition-backed forces in the city’s eastern and southern suburbs, on November 14 the Saudi-led military coalition halted the offensive. Days later, the Houthis said they would cease missile and UAV attacks against coalition and Yemeni targets. Both sides have since accused the other of violating the ceasefire.

On November 7, there were reports that pro-government forces were within 5 km of Hudaydah port, approaching from the east, taking control of the May 22 hospital on November 10. Eyewitnesses reported street battles and coalition strikes in the southern al-Rabsa neighborhood on November 12, which – as a densely populated residential area – locals said caused considerable displacement. Medical and military sources reported at least 149 killed during 24 hours. On November 9, Mohammed al-Bukaiti of the Houthi Political Bureau called for the group’s forces to move to the west coast, echoing similar statements by Houthi leader Abdulmalik al-Houthi in a televised speech on November 7.

On November 14, the Saudi-led military coalition temporarily halted the offensive, saying the ceasefire was intended to allow civilians to flee and facilitate humanitarian interventions. Reuters quoted an unnamed source as saying the move came following western pressure – particularly from the US – for a ceasefire to ensure the Houthis attended proposed peace talks in Sweden. Houthi officials subsequently claimed that the coalition had continued to carry out airstrikes, while UAE-backed forces say that Houthi missiles targeted residential areas in the city. On November 14, the director of President Hadi’s office, Abdullah al-Alimi, said retaking of Hudaydah is inevitable, by military or political means.

Credit: Ghaidaa Alrashidy, Sana’a Center research

Pro-Government Forces Advance on Northern and Southern Fronts

Elsewhere, anti-Houthi forces made gains in Sa’ada, Hajjah, and al-Dhale governorates. In the Houthi stronghold of Sa’ada, northern Yemen, the Yemeni army reported advances in the border districts of Baqim, Razih and Dhaher. On November 3, government media quoted senior military figure Abdul Karim al-Sodai as saying that pro-government forces had moved to within 40 kilometers of Mount Marran, in Haydan district – the Houthi movement’s heartland. Heavy airstrikes and shelling were reported in areas close to the Saudi-Yemeni border, with Razih seeing particularly concentrated bombardment.

Government forces reported gains in northern Hajjah governorate, claiming on November 5 to have taken control of the Ahem junction in Haradh district – a strategic crossroads that connects Hardah city with Hudaydah governorate, to the south, and Amran governorate to the east. Efforts by coalition-backed forces to encircle Haradh district have encountered resistance from Houthi forces’ positions in the al-Nar mountains east of Haradah city, through which the road to Sa’ada runs.

In the south, the Yemeni army continued their drive toward the city of Damt, northern al-Dhale, in the small remaining area of the southern governorate that remains under Houthi control. Army media said that government forces took control of al-Hakab castle overlooking Damt on November 6, with clashes reported on the southern outskirts of the city by mid-November and claims that Houthi counterattacks on territory held by government forces have been largely repelled.

Tensions Persist Between Anti-Houthi Forces in Taiz

Ongoing tensions between anti-Houthi forces in Taiz governorate (background available here) escalated in November, centered in al-Turbah, in the south of the governorate. The area has seen a wave of attempted assassinations targeting high profile figures and disputes over control of checkpoints on the strategic road linking Taiz City and Aden. Competition between the UAE-backed Abu Abbas brigade and government military units aligned with the Islah party descended into clashes on the streets of Taiz city in August. While the subsequent withdrawal of Abu Abbas’ forces from the city put an end to the armed violence, the conflict has essentially moved southwards, where both sides continue to compete for territorial control and influence.

According to Sana’a Center sources, a meeting between high-level political and military figures in Taiz on November 4 – spurred by pressure from Riyadh – resulted in an agreement for both Abu Abbas’ and Islah-aligned forces to remove their checkpoints from al-Misrakh and al-Nashmah areas, both of which lie on minor roads leading to Taiz city. A spate of assassination attempts against high-level figures in the following weeks, however, belied cracks in the uneasy truce. The Islah-aligned 17th Infantry Brigade reported the targeting of two of its commanders, Brig. Gen. Abdulrahman al-Shamsani, on November 10, and Brig. Gen. Abdul Rahman al-Shamani, on November 17. Also on November 17, Brig. Gen. Adnan al-Hammadi, a commander of the 35th Armoured Brigade – which coordinates closely with Abu Abbas’ forces – reportedly survived an assassination attempt. Then, on November 21, gunmen reportedly fired on the convoy of Brig. Gen. Abdul Aziz al-Majidi, chief of staff of the Taiz Military Axis – the umbrella group of anti-Houthi forces fighting in the governorate.

Other Military and Security Developments In Brief:

 

Political Developments

Islah Leaders Visit Abu Dhabi

At the beginning of November representatives from the armed Houthi movement and Yemen’s Islah party met in the Omani capital Muscat, according to Sana’a Center sources familiar with the proceedings. These were follow-up talks to ones held earlier this year between the two parties, and were intended lay the foundation for mediation between the groups (Islah is currently a member of the pro-Yemeni government forces battling the Houthis).

However, seeking to forestall such mediation, the UAE intervened. On November 14, Abu Dhabi Crown Prince Mohamed bin Zayed Al Nahyan hosted senior Islah party leaders in the Emirati capital. These talks included Islah’s chairman, Colonel Mohammed Abdullah al-Yidoumi, and the party’s secretary-general, Abdulwahab Ahmad al-Anisi. Adnan al-Adini, a senior Islah leader, called the visit an “important and positive step” that aimed to “remove any confusion.”

The UAE regards Islah as a branch of the regional Muslim Brotherhood movement, which, along with Saudi Arabia, it designated as a terrorist organization in 2014. Islah denies any organizational ties with the political Islamist movement. Throughout the Yemen conflict, there have been regular tensions on the ground between armed groups funded by the UAE and those aligned with Islah, though there have been some indications of a thawing of relations, exemplified in a landmark meeting in December 2017 between senior Islah leaders, Crown Prince Mohammed bin Zayed al-Nahyan, and Saudi Crown Prince Mohammed bin Salman.

At the meeting last month, Sana’a Center sources reported that the Islah officials were issued a number of demands for them to comply with, which they accepted in exchange for the UAE ending its hostilities toward them. These demands included: that Islah end talks with the armed Houthi movement; that the party end its association with Yemeni Vice President Ali Mohsen; that Islah reactivate frontlines with the Houthis that have become relatively dormant, specifically in Taiz governorate and the Nihem district of Sana’a governorate; and that Islah cut its ties with Qatar.   

Notably, just prior to the meeting in Abu Dhabi on November 10, al-Odini accused Qatar – which has been locked in a diplomatic spat with it’s Gulf neighbors since May 2017 – of supporting the Houthis.  

Other Political Developments In Brief:

 

Humanitarian Developments

Almost 85,000 Yemeni Children Estimated to have Died From Hunger

On November 21, analysis by Save the Children stated that some 85,000 children are likely to have died from hunger in Yemen since the beginning of the conflict. This analysis was built on data collected by the United Nations, and calculated using conservative estimates of mortality rates for children less than five years old who suffer from untreated severe acute malnutrition. This follows the UN warning in October that Yemen was on the cusp of the worst famine the world has seen in a century.

In a press release, Bill Chamber, CEO of Save the Children, added that “the lives of an estimated 150,000 children still trapped” in the city of Hudaydah were also in imminent danger.

INGOs and Health Facilities Under Threat in Hudaydah

On November 8, 14 international nongovernmental organizations operating in Yemen issued a joint statement in which they said they were “appalled” by the escalation in violence in and around Hudaydah City. According to the World Food Programme, it has cause a “huge” number of displaced civilians. Additionally, Medecins Sans Frontieres reported that various Health facilities have been endanger, such as al-Thawrah hospital, the largest hospital in Hudaydah. On November 6, UNICEF Executive Director Henrietta Fore expressed her concerns regarding the fighting near al-Thawrah hospital. In early November, Houthis fighter took over a rooftop of a hospital in Hudaydah city, which led to three airstrikes on the building according to the Norwegian Refugee Council

November 7, Save the Children reported that its health facility was damaged by shelling into their area in Hudaydah city. The World Health Organization also reported on November 8 that the fightings now are close to the hospitals hindering the flow of medical staff and patients.

On November 11, an attack by the Saudi Coalition was close to al-Thawrah hospital and al-Salakhana hospital where constraints are being added to their operations. Notably, World Food Programme Executive director David Beasley said during a TV interview with CNN on November 14 that Houthis planted seven landmines inside their facility.

November 22, Under-Secretary-General for Humanitarian Affairs and Emergency Relief Coordinator Mark Lowcock, and UNICEF Executive Director Henrietta Fore released a joint statement urging warring parties to keep the reduction of hostilities in Hudaydah. And expressed serious concerns on the fightings near al-Thawrah hospital that has been damaged before and is now in danger. To avoid any upcoming disasters they demanded “a package of five measures” which are; “a cessation of hostilities, protection of the supply of food and essential goods, support for the economy, increased funding for the response, and engagement by the parties with the Special Envoy to end the conflict”.

Saudis, Emiratis Launch US$500 million Imdad Initiative

On November 20, the Humanitarian Aid and Relief Centre (KSRelief) and Emirates Red Crescent announced the Imdad initiative. According to the announcement, Imdad will provide US$500 million worth of support, though the UN and other organizations, to address the food security crisis in Yemen. The initiative’s founding organizations estimated it will benefit 10 million to 12 million Yemenis. .

Other Humanitarian Developments in Brief:

 

Human Rights and War Crimes Developments

Hudaydah Battle Sparks Surge in Atrocities Against Civilians

The intensification of the in and around Hudaydah City in early November was accompanied by a spike in suspected violations of human rights and humanitarian law. In the first week of November, the UN reported that airstrikes, shelling and landmines killed 34 civilians and injured 92 injured in Hudaydah governorate, with most of these incidents occurring in the suburbs of Hudaydah City.   

On November 7, Houthis fighters took up position on the roof of al-Thawra Hospital, according to Amnesty International, putting patients and medical staff alike a risk of being targeted by coalition airstrikes. The same day, Houthi shelling killed four civilians and injured two in a residential area in al-Tahita district, southern Hudaydah governorate, according to al-Masdar Online.

Al-Masdar also reported that in early November Houthis fighters detained hundreds of workers at a silo facility at Hudaydah port. According to the report the silos contain the equivalent of 5 million bags of flour and are the largest such stockpile in northern Yemen. The Houthi fighters have prevented the workers from leaving the facility and forced them to continue working, while the fighters themselves have established sniper positions on atop the facility and dug tunnels around it.

For its part, the Saudi-led military coalition launched 200 airstrikes in Hudaydah over the first weekend of November, according to UN. On November 11, airstrikes hit close to al-Thawra Hospital, causing many inside to flee in panic, according to Amnesty International. On November 13, more airstrikes killed seven civilians and injured four while they were in a bus attempting to flee clashes in the city, according to New York Times.

Civilians Account for One-third of the Casualties of US Drone Strikes in Yemen

On November 14, the Associated Press (AP) reported that civilians account for a third of deaths from US drone strikes in Yemen, based on estimates compiled through interviews with witnesses to the strikes, families of victims, tribal leaders and local activists.

The US began its drone campaign against AQAP 16 years ago, with a marked uptick in strikes under the Trump presidency: 176 in his first two years in office, compared with 154 strikes in Obama’s whole eight-year tenure, according to AP.

UNHRC Body Reviews Riyadh’s Human Rights Record

On November 5, at the Universal Periodic Review (UPR) at the UN Human Rights Council (HRC) in Geneva, member states discussed the human rights situation in Saudi Arabia, and Saudi conduct in the Yemen conflict. Member states recommended that the Saudi-led military coalition take measures to enhance the peace process, protect civilians and particularly children in Yemen, ensure humanitarian access, immediately halt the conflict, end the blockade on Yemen and to implement the recommendations the UN Group of Eminent Experts released in August this year. Iran was the country delivering the highest number of recommendations on the Saudi role in the Yemen conflict.

In response, Saudi Arabia affirmed its full commitment to international humanitarian law and the protection of Yemeni civilians. Riyadh also emphasized the humanitarian and financial assistance that it had provided to Yemen, and said it had regularized the status of more than half a million Yemenis in Saudi Arabia, allowing them to work legally.

The Khashoggi affair also figured among recommendations, with several states calling for a credible investigation into the incident. Saudi Arabia, in turn, affirmed its commitment to investigate the case and prosecute all perpetrators.

Houthi Detainees Appear Before Special Criminal Court

On November 25 the Specialized Criminal Court held a hearing for 36 political prisoner held by Houthi security forces in Sana’a, with most having been detained for more than two years.

According to a brother of one of the detainees who spoke to the Sana’a Center, the hearing was the first at which the Houthi authorities allowed defense lawyers to present evidence. He added prosecutors had requested a copies of the evidence following the hearing, with the next hearing scheduled for December 30, 2018.


This report was prepared by Waleed Alhariri, Holly Topham, Hussam Radman, Ghaidaa Alrashidy, Anthony Biswell, Sala Khaled, Aisha al-Warraq, Ali Abdullah, Victoria K. Sauer, Hamza al-Hamadi, Taima al-Iriani and Spencer Osberg.


The Yemen Review – formerly known as Yemen at the UN – is a monthly publication produced by the Sana’a Center for Strategic Studies. Launched in June 2016, it aims to identify and assess current diplomatic, economic, political, military, security, humanitarian and human rights developments related to Yemen.  

In producing The Yemen Review, Sana’a Center staff throughout Yemen and around the world gather information, conduct research, and hold private meetings with local, regional, and international stakeholders in order to analyze domestic and international developments regarding Yemen.

This monthly series is designed to provide readers with contextualized insight into the country’s most important ongoing issues.

This month’s report was developed with the support of the Kingdom of the Netherlands and the Friedrich-Ebert Yemen office.

Islah’s Political and Military Ascent in Taiz

Islah’s Political and Military Ascent in Taiz

Since August 2018, the Yemeni Congregation for Reform, otherwise known as the Islah party, has taken major steps towards consolidating political and military power in Taiz City. Islah officially supports the internationally recognized Yemeni government of President Abdo Rabbu Mansour Hadi; however, the party’s increasing capacity to act independently in Taiz represents a further erosion of the state’s purview within areas the government supposedly controls. Islah’s rise in Taiz, if solidified, is likely to complicate United Nations-led efforts to secure a peace agreement between the Houthi leadership and the internationally recognized Yemeni government. It also threatens potential post-conflict efforts to stabilize the country’s political and security environments and establish effective state sovereignty.

The Yemen Review – October 2018

The Yemen Review – October 2018

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Executive Summary:

In October, the United Nations warned that Yemen could become the worst famine the world has seen in a century, with some 14 million people – half the population – facing starvation. This crisis is primarily due to the collapsing value of the Yemeni rial: Yemen is overwhelmingly dependent on imports to feed itself and the rial’s depreciation has thus made foodstuffs vastly more expensive.

The murder of Saudi journalist and Washington Post columnist Jamal Khashoggi at the Saudi consulate in Istanbul grabbed world headlines throughout the month. This in turn focused world attention on Riyadh’s role in the Yemen war, led the United States and the United Kingdom to call for a ceasefire, and prompted many Western governments to reconsider weapons sales to Saudi Arabia.

Following a build-up of anti-Houthi forces towards the end of October on the outskirts of the Houthi-held Red Sea city of Hudaydah – a crucial entry point of commercial and humanitarian goods for Yemen’s largest population centers – the battle for the city reignited in earnest at the beginning of November.  

Yemeni President Abdo Rabbu Mansour Hadi fired Prime Minister Ahmed bin Dagher on October 15 and launched an investigation against him for corruption and negligence. Bin Dagher had held the post since the spring of 2016 and was replaced by Maeen Abdelmalek Saeed, who was until then the Minister of Public Works and Roads.

A report from Buzzfeed News documented how the United Arab Emirates had paid US mercenaries to assassinate its political opponents in Yemen, primarily individuals associated with the Islah party in the southern Yemeni city of Aden.   

The internationally recognized Yemeni government’s Economic Committee implemented new fuel import regulations, which would disqualify many Houthi-affiliated traders from importing fuel. The Houthi authorities in Sana’a subsequently threatened the senior staff of Yemen’s commercial banks – almost all of which are headquartered in Sana’a – with imprisonment if they complied with the Economic Committee’s decrees. These developments – along with the Houthi authorities appointing new senior staff to the Sana’a-based branch of the central bank – have likely escalated the war’s economic and financial ramifications for the Yemeni population.

Cyclone Luban made landfall in Yemen’s eastern Mahra governorate (picture above), with the UN estimating that 2,200 families were displaced by the storm.

Meanwhile, the Islah party continued to consolidate political and military control in Taiz City, a development that began in August and one that threatens to complicate future conflict resolution efforts.


The Sana’a Center Editorial

Islah’s Political and Military Ascent in Taiz

Since August 2018, the Yemeni Congregation for Reform, otherwise known as the Islah party, has taken major steps towards consolidating political and military power in Taiz City. Islah officially supports the internationally-recognized Yemeni government of President Abdo Rabbu Mansour Hadi; however, the party’s increasing capacity to act independently in Taiz represents a further erosion of the state’s purview within areas the government supposedly controls. Islah’s rise in Taiz, if solidified, is likely to complicate United Nations-led efforts to secure a peace agreement between the Houthi leadership and the internationally-recognized Yemeni government. It also threatens potential post-conflict efforts to stabilize the country’s political and security environments and establish effective state sovereignty.   

With the escalation of the ongoing conflict in March 2015, Taiz City and the wider governorate have been an epicenter of violence, with Houthi fighters continually clashing with various anti-Houthi forces. Within the anti-Houthi coalition in Taiz City, Islah-affiliated forces and the Salafi-oriented Abu al-Abbas Brigades have also had long-running tensions and periodic clashes. Among the former’s most prominent backers are Yemeni Vice President Ali Mohsen al-Ahmar and President Hadi’s chief of staff Abdulla al-Alimi; while the Abu al-Abbas Brigades are supported by the United Arab Emirates (UAE).

On August 8, 2018, intense clashes between Islah-affiliated groups and the Abu al-Abbas Brigades erupted, prompting President Hadi to hold an emergency meeting with Governor of Taiz Amin Mahmoud. Following this, Hadi announced the creation of a presidential committee to end the violence. The presidential committee, however, was dominated by Islah figures. Most prominent among these, and the committee chair is Abdu Farhan Salem, commonly referred to as “Salem.” He is arguably the most important Islah-affiliated military official in Taiz, as an advisor to the commander of the Taiz Military Axis, Khaled Fadl – also an Islah figure.

The presidential committee brokered a deal in which both the Abu al-Abbas Brigades and Islah-affiliated national army units and militias agreed to withdraw from positions within Taiz City. On August 18, the committee reported that all positions had been handed over to the Presidential Guard. However, by month’s end it was clear that while Abu al-Abbas’ forces had withdrawn, Islah-affiliated forces remained.

In September, Governor Mahmoud publicly thanked the presidential committee for its efforts before asking that it be dissolved, having seemingly fulfilled its mandate. The committee refused, insisting that, having been established through a presidential decree, another presidential decree was required for it to be dissolved. To date, President Hadi has not issued such a decree.  

In the meantime, Islah affiliates have leveraged the committee’s apparent authority to assert control over the official security apparatuses in Taiz that had technically been under the governor’s jurisdiction. Within these institutions, Islah has dismissed officials considered unloyal to it while promoting Islah affiliates. The committee has also facilitated the withdrawal of other anti-Houthi forces from areas around Taiz, in place of whom Islah-affiliated forces have moved in. Aiding Islah’s expanding clout in Taiz are the group’s strong grassroots support, local business ties, and loyalists in senior military positions. Currently, the largest anti-Houthi force unaffiliated with Islah still present in Taiz City is the Yemeni army’s 35th Armoured Brigade, which has worked closely with the Abu al-Abbas Brigades and is backed by the UAE.

Islah’s rapid ascent is allowing it, a non-state actor, to increasingly consolidate its authority in Taiz and be able to assert its own control independently from the internationally-recognized Yemeni government. Meanwhile, it also appears that Islah is coordinating efforts to have the current governor replaced with someone more amenable to the party.

The creation of another statelette within Yemen, however, is not inevitable. There are practical steps that local, regional and international stakeholders can take to head off this potential scenario. First, President Hadi must issue a decree officially disbanding the presidential committee. Second, he can order the removal of officers from Taiz’ military and security apparatuses who were appointed based on their political affiliations. Third, he can institute measures to increase the professional standards within, and decrease the ideological character of, the security forces in Taiz.

President Hadi should also help support the current governor’s legitimacy through greater financial support and ensuring that all civil servants in Taiz receive their salaries on a regular basis. While the consistency of public sector salary payments has improved relative to 2017, still not all civil servants are regularly receiving their salaries.

Saudi Arabia is the best-placed actor to compel Islah to follow the Yemeni government’s lead. This is due to the longstanding relationship between Saudi decision-makers and Islah, and the fact that many Islah leaders reside in or regularly travel to Riyadh.

UN Special Envoy for Yemen Martin Griffiths should be particularly interested in recent developments in Taiz, given how the governorate represents another power center where non-state actors are competing for influence. Ignoring Taiz could complicate his conflict mediation efforts between the main warring parties. He has recourse: Griffiths’ staff can communicate clearly with senior Islah figures, and other parties, that if their members are noncompliant and act as peace spoilers, their leadership will be placed on the UN 2140 Sanctions List.

General conflict de-escalation efforts in Taiz should also focus on opening the Sana’a Road. This thoroughfare is a key access route through the al-Hawban area, located northeast of Taiz city, and is currently a frontline between Yemeni government and Houthi forces. It connects Taiz with the cities of Ibb and Sana’a and opening it would dramatically reduce the time and expense it currently takes to transport people and goods to and from Taiz. An open Sana’a Road would thus increase humanitarian access to the population and reduce the cost of commercial goods.

Houthi forces are facing considerable pressure along various frontline areas around Taiz City, including: Haifan (east of Taiz City); al-Burj and al-Kadha (west of the city); al-Salal hill (to the northeast) and al-Qabbaytah and Karish (on Taiz’s southeastern border with Lahj governorate). Mediation efforts could thus involve de-escalation efforts along these frontlines in exchange for a ceasefire in al-Hawban and the reopening of Sana’a Road. Such would represent a major step towards ending the Houthi siege on government-held areas of Taiz City, and dramatically improve the dire situation facing the civilian population.  


Demonstrations against the economic situation in the country and the collapsing value of the Yemeni rial erupted in Taiz on October 2, with protesters rallying under the slogan “The Revolution of the Hungry.”

International Developments

Khashoggi Murder Focuses World Attention on Saudi Campaign in Yemen

On October 2, Saudi journalist and Washington Post columnist Jamal Khashoggi entered the Saudi consulate in Istanbul, apparently seeking documents related to his upcoming marriage. He was not seen alive again in public. While Saudi authorities initially claimed he had left the consulate later that day, Turkish officials soon asserted that Khashoggi had been killed by a 15-man hit squad that had flown in by private jet from Saudi Arabia. This group apparently included individuals who were part of the personal security entourage of Crown Prince Mohammed bin Salman.

Turkish authorities released video surveillance footage showing Khashoggi entering the consulate and members of the hit squad landing in Istanbul and also entering the consulate. This led to intensifying international pressure on Riyadh to explain the journalist’s disappearance. After putting forth various narratives throughout October trying to explain the event, by month’s end Riyadh had admitted that Khashoggi was killed at its consulate in a “premeditated” manner. Saudi officials further stated that they would hold accountable those responsible and arrested 18 people. Istanbul’s chief prosecutor stated at the end of October that Khashoggi had been killed and dismembered shortly after he had entered the Saudi consulate.     

US, UK Call for a Ceasefire in Yemen

In separate statements made on October 30, Secretary of Defense Jim Mattis and Secretary of State Mike Pompeo called for a ceasefire in Yemen within 30 days and urged all parties to participate in UN-brokered peace talks to bring an end to the conflict. In his strongest words yet on the subject, Pompeo said that the Houthis must cease long range drone and missile attacks on Saudi Arabia and the United Arab Emirates (UAE), after which the Saudi-led military coalition must halt airstrikes in populated areas. Mattis said that peace talks based on a ceasefire, a Houthi pullback from the Saudi border and the cessation of airstrikes should begin “within 30 days.”

While Mattis said that the two should not be considered as connected in terms of policy, the death of journalist Khashoggi at the Saudi consulate in Istanbul dramatically raised the profile of Yemen’s war in the US throughout October and prompted renewed calls for the US to reconsider its support for the Saudi-led military coalition. US officials, speaking off the record, said that Khashoggi’s death had altered the cost-benefit analysis in US-Saudi relations, with the Trump administration having “reached the maximum weight of what they’re willing to bear.”

On October 31, United Kingdom foreign secretary Jeremy Hunt reiterated the call for a ceasefire within a month. The same day, UN Special Envoy for Yemen Martin Griffiths said he was “committed to bring the Yemeni parties to the negotiations table within a month.” The following week, however, he retracted this commitment and said instead that he was aiming to bring the warring parties back to the table by the end of 2018.

US Legislators Call for Restrictions on Arms Sales to Riyadh

After the Senate Foreign Relations Committee triggered an investigation on October 10 into Khashoggi’s disappearance, Sen. Rand Paul (R-KY) introduced a bill that would cut off military aid to Saudi Arabia until the journalist was found “alive and free.” A group of bipartisan lawmakers then filed another, broader bill that, in addition to prohibiting arms sales, would also end any “security assistance” to Saudi Arabia, including intelligence and training support.

On October 19, Congressmen Ted Lieu (D-CA) and Jim McGovern (D-MA) introduced separate legislation that would increase congressional oversight of all US arms sales. The Arms Sale Oversight Act would allow any House member to force a debate on the floor in the event that the House Foreign Affairs Committee does not debate a weapons deal. In a tweet, Lieu specified exports to Saudi Arabia as in need of greater scrutiny – oversight that the congressman had been advocating for some time.

In response, President Donald Trump told reporters on October 20 that it would not be “helpful” to cancel arms exports to Saudi Arabia. He cited jobs and revenues tied up in US$110 billion worth of military contracts as part of wider bilateral agreements worth US$450 billion. This claim drew wide media attention, with Vox, Politifact, The Hill, and CNN, amongst others, disputing the figures and challenging Trump’s argument to continue arms sales based on domestic economic interest. Behind the scenes efforts to save existing deals took place in the wake of the Khashoggi affair, with the Aerospace Industry Association urging leading defence contractors to lobby government figures, and provide talking points when dealing with the media.

Also in the US, on October 8, Sens. Elizabeth Warren (D-MA) and Ro Khanna (D-CA) wrote a letter to Secretary of State Mike Pompeo challenging his September certification that the Saudi-led military coalition was taking measures to reduce civilian casualties in its operations in Yemen. An amendment to a defence spending bill passed in August made continued US support for the coalition conditional upon Pompeo’s certification (for details see The Yemen Review – September 2018). The senators said that the UAE and Saudi Arabia had failed to implement US recommendations and that statistics on civilian deaths from coalition airstrikes demonstrated that sufficient action had not been taken. They added that Pompeo’s certification memorandum indicated that the coalition had, at times, violated US laws regulating arms sales.

Western Nations Reconsider Arms Sales to Saudi Arabia

Numerous heads of state and legislators from Western countries responded to Khashoggi’s killing last month. On October 21, German Chancellor Angela Merkel said that Germany would no longer approve arms sales to Saudi Arabia as long as investigations on the case were ongoing. According to spokesman Steffen Seibert, the German government had not yet decided how to deal with arms sales that had already been approved prior to Merkel’s announcement. A day later on the public television broadcaster ZDF, German Economy Minister Peter Altmaier demanded a common European stance towards Saudi Arabia, noting that sanctions would only be effective if jointly implemented. To note, in its coalition agreement of March 2018, the new German government had agreed to no longer approve arms sales to states participating in the Yemen conflict. Nevertheless, FAZ reported on October 1 that, since taking office in March, the new German government had approved arms exports worth €254 million and €21.8 million to Saudi Arabia and other members of the Saudi-led military coalition, respectively.

Austria, currently holding the presidency of the Council of the European Union, reiterated the German call, with Austrian Foreign Minister Karin Kneissl, talking to the German Die Welt newspaper on October 26, demanding that the EU jointly halt arms sales to Saudi Arabia. Kneissl said that “the terrible war in Yemen” in particular should induce such common measures.

Other European and Western states, however, were more tentative in their responses. On October 21, the foreign ministers of France, the UK and Berlin released a joint statement in which they demanded further investigation into the case and accountability for the perpetrators of any crime committed.

On October 25, the Élysée Palace said that French President Emmanuel Macron had, in a telephone call the day before with Saudi King Salman bin Abdulaziz, demanded a full investigation into Khashoggi’s death. Macron added that in cooperation with its partners, France would not hesitate to impose sanctions against those found responsible for the killing – a position later reiterated by Minister for Foreign Affairs Jean-Yves Le Drian. On October 26, President Macron called the step to halt arms sales to Saudi Arabia “pure demagogy,” saying that while he understood “the link to Yemen,” there was none between arms sales and the Khashoggi affair. He added that he supported a common European reaction, such as sanctions, “once the facts [have been] established.”

While taking a stronger stance in condemning the killing of Khashoggi, a European Parliament resolution of October 25 largely stayed in line with the French position in calling upon the EU and its member states to “stand ready to impose targeted sanctions […] once the facts have been established.” According to the text, sanctions such as visa bans and asset freezes should be directed against the perpetrators as well as “the masterminds and inciters of this crime.” The resolution also called for an independent international investigation into the case and that EU member states propose to the Human Rights Council in early November that a Special Rapporteur be appointed to investigate human rights in Saudi Arabia.

On October 23, the Spanish parliament voted against a motion that called for a halt in arms sales to Saudi Arabia, following controversial statements and debates on the subject in Spain the preceding month (for more see ‘The Yemen Review – September 2018’).

On October 22, Canada’s opposition left-wing New Democratic Party demanded in parliament that the country end arms exports to Saudi Arabia in light of the kingdom’s military engagement in Yemen and the Khashoggi killing. The next day, Prime Minister Justin Trudeau warned that it would be difficult and costly to cancel a 2014 arms deal with Saudi Arabia, due to the terms of the contract, which is worth up to US$13 billion. On October 25, the prime minister then said the government was reviewing existing export permits of arms deliveries to Saudi Arabia, referring to the Khashoggi killing.

Meanwhile, Arab countries generally expressed support and solidarity with Saudi Arabia, with the exception of Qatar, which called the affair a “wake-up call for everyone.” Yemeni President Abdo Rabbu Mansour Hadi said the  “cheap political and media targeting of Saudi Arabia will not deter it from continuing its leading role in the Arab and Islamic worlds.” Meanwhile in Sana’a, Mahdi al-Mashat, president of the Houthi’s Supreme Political Council, defended Saudi Arabia against US threats of sanctions over the journalists’ death, condemning what he called a “humiliating approach” by President Donald Trump.

 

European Parliament Calls For a Comprehensive EU Strategy on Yemen

On October 4, the European Parliament voted in favor of a resolution calling for an immediate cessation of hostilities in Yemen and the resumption of peace talks led by the UN Special Envoy. The resolution supports confidence-building measures such as the complete reopening of Sana’a International Airport and the payment of civil servants’ salaries in all areas of Yemen. In light of the divergent policies of different EU member states, it calls on the EU’s foreign policy chief Federica Mogherini to develop a comprehensive EU strategy for Yemen.

The resolution repeats a previous call to impose an arms embargo on Saudi Arabia and urges EU member states to refrain from selling military equipment to coalition members. It says that such arms transfers are in violation of common EU rules. The text calls for the belligerent parties to be held accountable for their actions, and for the US to judicially oversee their use of military drones in Yemen.

 

Other International Developments in Brief:

  • October 1: The US announced that it had completed a two-week training of Yemeni Border Guard troops in Riyadh, in a program aimed at countering weapons and weapons-related smuggling. In August, US defense representatives met with Yemen’s Vice President Ali Mohsen al-Ahmar to discuss increasing cooperation and training of counterterrorism forces.
  • October 16: The Élysée Palace announced that the French sailor, Alain Goma, who had been detained by the armed Houthi movement since early June, had been released. It stated that French President Macron thanked the Omani and Saudi authorities for their help in liberating the French citizen, without disclosing any details on how he was freed. According to his family quoted by Le Monde, Alain Goma was flown to Oman.
  • October 17: South Korea’s Justice Ministry denied refugee status to 339 Yemeni asylum seekers, granting them one-year renewable humanitarian permits instead. The ministry rejected 34 others based on criminal charges and postponed the decision on 85 others. More than 500 Yemenis have, via Malaysia, arrived on the South Korean resort island Jeju this year, given its visa-free policy. This policy was, however, recently dropped for Yemenis following anti-refugee protests in South Korea. While the majority of these Yemenis have applied for refugee status, no requests have been granted. Most remain on Jeju island, as they are prohibited from travelling to the South Korean mainland.
  • October 19: US Senator Elizabeth Warren (D-MA) wrote a letter to Attorney General Jeff Sessions, requesting an investigation into claims that the UAE had paid US nationals to assassinate political figures in Yemen (see below ‘UAE Paid US Mercenaries to Assassinate Political Opponents in Yemen).
  • October 26: The Swedish mission to the UN Security Council (UNSC) hosted a closed breakfast meeting with representatives from the German mission to the UN, UN Women, and the Yemeni Women’s Pact for Peace and Security. Discussions revolved around how Germany, an incoming UNSC member state for 2019, could continue supporting women’s participation in Yemen’s political process at the council when Sweden’s term ends this year.
  • October 26: Sultan Qaboos of Oman received Israeli Prime Minister Benjamin Netanyahu at his palace in Muscat, in a diplomatic visit that likely signals a turning point in relations between Israel and countries in the wider Middle East.     
  • October 30: The Elders, a group comprised of high-profile world figures advocating for peace and human rights, released a statement calling on the UNSC – with emphasis on the United Kingdom, the United States and France, as the three major powers backing the Saudi-led military coalition forces – to take urgent action to bring an end to the blockade of Yemen and avert a humanitarian catastrophe. 

In Yemen

Military and Security Developments

Anti-Houthi Forces Launch New Offensive on Hudaydah

On November 2, Yemen’s armed forces announced the launch of a new “large-scale offensive” in the Red Sea port city of Hudaydah. Pro-government media reported on November 4 that government forces had taken the eastern, western and southern entrances to the city, gaining full control of the Kilo 16 that links Hudaydah to the Houthi-held capital Sana’a.

Brig. Gen. Abdulrahman Saleh al-Mahrami, one of the top commanders of the UAE-backed Giants Brigades, reported that his forces had reached the town of al-Saleh, 3 kilometers from Hudaydah port and in the vicinity of the Red Sea Mills, home to some of the country’s largest grain-storage silos. Houthi military spokesman Brig. Yahia Sarei denied the reports, calling them a “tactic of misinformation.” Sarei claimed Houthi rockets and artillery fire had destroyed much of their opponent’s military hardware, while Houthi minefields had caused enemy troop casualties. Houthi media reported that more than 50 coalition airstrikes had hit the Kilo 16 area, east of Hudaydah, and Hudaydah airport on November 3.

UAE-backed anti-Houthi forces supported by coalition air power launched an offensive on the strategic port city in June. Frontlines had remained largely static during October, with fighting centered on areas in the south of the governorate. On October 30, Yemeni military officials said 10,000 new troops were due to arrive in Hudaydah ahead of a fresh drive to take the port.

Report Claims UAE Paid US Mercenaries to Assassinate Political Opponents in Yemen

On October 16, Buzzfeed News reported that the UAE had hired former US special forces personnel to assassinate political figures and clerics associated with the Islah party in southern Yemen. The UAE regards Islah as the Yemeni branch of the international Muslim Brotherhood movement, which Abu Dhabi considers a terrorist organization.

Hungarian-Israeli security contractor Abraham Golan, founder of Delaware-based Spear Operations Group, said the UAE had flown his team to Aden and paid them US$1.5 million per month – plus bonuses for successful kills – to assassinate figures whom Emirati officials designated as targets. He said this campaign was “sanctioned by the UAE within the coalition” and Buzzfeed quoted several unidentified sources saying members of the assassination team were given ranks in the Emirati military to provide them with legal cover. Golan claimed that his group was responsible for killing numerous high-profile figures in Yemen, but declined to name any of the targets besides their initial operation.

The Buzzfeed report recounts the details of the group’s first alleged operation in December 2015, in which Golan said he led a team of US mercenaries, backed by former members of the French Foreign Legion, in a botched assassination attempt of Islah leader Anssaf Ali Mayo in Aden. According to Golan’s account, the mercenaries had planned to kill Mayo using an explosive device attached to the doorway of the party’s headquarters in the city; the device did explode, however, Mayo had left shortly beforehand. The Sana’a Center spoke with an Islah member who was at the headquarters that night and confirmed there was an explosion, and that Mayo had left the building shortly beforehand.

Following this, Golan said Emirati military officials provided his team with high-end American weaponry, such as C4 explosives, pistols equipped with silencers, and M4 rifles. The Buzzfeed report also notes that the team was “outfitted with motorbikes they could use to scoot through Aden’s traffic and affix magnetized bombs to cars.”

Credit: Ghaidaa Alrashidy, Sana’a Center research

 

Tensions Escalate Between Islah and UAE-Backed Forces in Hadramawt

Amid protests over security and economic conditions in the administrative region of Hadramawt Valley (Wadi Hadramawt), tensions escalated between UAE-backed groups and Islah-dominated military units. Hadramawt valley’s security committee said on October 9 that it supported the protesters, in defiance of Vice President Ali Mohsen al-Ahmar, whose forces control security in the area and clashed with demonstrators at the beginning of the month, according to reports on pro-separatist news websites.

On October 12, pro-UAE news website Golden News published a report in which Hadramawt Governor Faraj Bahsani accused Islah-affiliated brigades of harbouring “terrorist groups” in Hadramawt valley, and called for the deployment of the Hadrami Elite Forces in the region. Security control in the southeastern governorate is split between Islah-dominated forces loyal to Ali Mohsen in Hadramawt valley, and the UAE-backed Hadrami Elite Forces in the governorate’s coastal region. Bahsani’s comments came after STC spokesman Salim Thabet al-Awlaki declared that Hadramawt valley would be “purged” of Islah-affiliated forces.

Other Military and Security Developments in Brief

 

Political Developments

President Hadi Sacks Prime Minister Ahmed Bin Dagher

On October 15, President Abdrabbuh Mansour Hadi dismissed Yemeni Prime Minister Ahmed Bin Dagher, citing government “negligence” over the country’s economic crisis and the insufficient response to tropical cyclone Luban (see below ‘Cyclone Luban Hits Mahra’). Hadi added that bin Dagher would be placed under investigation for corruption and failing in his duties as prime minister. Bin Dagher had been in the post since the spring of 2016, when he replaced then-Prime Minister and Vice President Khaled Bahah.

Dagher’s successor, Minister of Public Works and Roads Maeen Abdelmalek Saeed, is Yemen’s fourth prime minister since 2012. He arrived in Aden from Riyadh on October 30. He is generally considered to be more technocratic than political. As minister of public works, Saeed has worked closely with Saudi Arabia on projects in Yemen. Saeed was also vice president of the government’s coordination committee, which oversaw the deposit of US$2 billion Riyadh had granted the Aden-based Central Bank of Yemen (CBY) earlier this year. A Taiz native, Saeed was part of government delegations to previous UN-brokered peace talks with Houthi officials and took over the ministerial portfolio for public works in May 2017. (For more analysis, see ‘What Does the New Head of the Internationally Recognized Government Mean for Yemen?’)

STC Call for Uprising Against the Yemeni Government Fizzles Out

On October 3, the Southern Transitional Council (STC), a UAE-backed secessionist group in southern Yemen, issued a statement saying that it supported a “popular uprising” against the Yemeni government, amid ongoing protests in southern governorates over price hikes and the devaluation of the rial. The STC said “catastrophic” government policies were to blame for the economic crisis and called for the seizure of government institutions “by peaceful means.” The STC’s call for an uprising represented the most serious escalation in Aden since deadly clashes between the separatists and pro-Hadi forces in January 2018, during which the STC had accused the government of corruption and called for its dissolution.

In a response to the statement, the government said it rejected the “Houthi and separatist rebellion, and all terrorist acts.” It also demanded the centralization of military units under state command and a halt to funding for armed groups outside of state control – taken to be a reference to various UAE-backed local security formations operating outside of the formal state military hierarchy in the south. Yemen’s Ministry of Interior added that the member states of the Saudi-led military coalition beared legal responsibility for the security situation in Aden and other government-held areas.

Shortly thereafter, STC leaders met with UN Special Envoy Martin Griffiths in Abu Dhabi, following which their public statements were noticeably more subdued. The STC then called off demonstrations it had slated for October 14, Yemen’s southern independence day. The STC statement cited the economic crisis, saying resources dedicated to the planned protests would instead be used for humanitarian assistance.

Other Political Developments in Brief

 

Economic Developments

Economic Committee Implements New Fuel Importation Regulations, Houthis Threaten Bankers With Imprisonment if They Comply   

Yemen’s financial and economic schism appeared to worsen in October, with the Aden-based and Sana’a-based authorities wrestling for control over import regulations and private sector financial players – particularly commercial banks – being caught between the two. The latest tensions relate to Ministerial Decree 75, which the Government of Yemen issued in September this year and whose aspects regarding fuel imports came into effect on October 9. Implementation of new regulations regarding food imports was postponed until November.

Decree 75 attempts, among other things, to limit fuel importers to only those approved by the Economic Committee, which the Government of Yemen established to help guide and implement its economic policy. The committee includes representatives from the Aden-based CBY and the banking sector, chambers of commerce and industry, and money exchange institutions. Those importers that meet the committee’s criteria are then eligible for import financing from the Aden-based CBY. Adherence to this importer selection is enforced in coordination with the Saudi-led military coalition – which has navy vessels patrolling Yemen’s coastal waters – and the United Nations Verification and Inspection Mechanism for Yemen (UNVIM), which is mandated to inspect all cargo ships headed for Houthi-held ports.

Among the Economic Committee’s criteria for approval are that importers must provide three years worth of bank statements from their operations. Furthermore, importers are required to deal with the banking sector, deposit their daily receipts from fuel sales into their accounts held in commercial banks, refrain from speculation in the currency market without the Aden-based CBY’s consent, and place a one-time deposit in a commercial bank account not less than 100 percent of the average value of the last five imported shipments.

These requirements would, however, disqualify many importers in Houthi-controlled areas. In July 2015, the Houthi authorities eased fuel importation and distribution restrictions in areas they control, opening the market – previously dominated by the state-run Yemen Petroleum Company (YPC) – for private sector actors. While pre-established private firms filled the immediate void left by YPC, in 2016 and 2017 a number of newly established players entered the market and quickly increased their share. This was due to a number of factors, chief among these being that the importers were on good terms with the Houthi authorities and were able to operate outside the commercial banking system, by using money exchange outfits for international financial transactions. In a recent alteration of this policy, the Houthi authorities have, since July 2018, required importers in areas they control to sell fuel directly to the Houthi-run YPC, allowing the Houthis a near monopoly on distribution in northern Yemen and thus the ability to set favorable profit margins.  

In response to the Economic Committee’s moves last month, Houthi officials held a meeting with representatives from Yemen’s commercial banks in Sana’a on October 18. Here, the former threatened the bankers with reprisals, including imprisonment of senior staff, if they abided by Aden-based CBY and Economic Committee directives. The Houthi threats are thus likely to impede the committee’s efforts, given that all but one of Yemen’s 17 banks are headquartered in Sana’a, the exception being Yemen National Bank, which has a head office in Aden.  

On November 4, the Sana’a-based CBY ordered commercial banks to refrain from using cash to cover letters of credit that are opened for imports, but rather that these letters of credit should be covered only using checks. This is an attempt to prevent the transfer of physical cash liquidity from Houthi-controlled areas to areas controlled by the internationally recognized Yemeni government.

Loopholes in the New Fuel Import Regulations

An example of the new fuel import regime in action came in mid-October, when the UNVIM denied two vessels authorization to dock at Hudaydah while their application to the Economic Committee was still pending. According to Sana’a Center sources, a single importer had arranged deliveries aboard the Al-Mirqab and Sea Heart, which were carrying 7,500 and 27,000 tons of fuel, respectively. The Economic Committee subsequently approved the importer’s application and the ships were permitted to dock.

The Sana’a Center Economic Unit learned that the importer, wary of Houthi reprisals for having interacted with the Economic Committee, had reached an arrangement with the Houthi-run YPC to allow him to proceed with the transaction unobstructed. Such ad hoc agreements, or possibly longer-term partnerships with fuel importers able to meet the Economic Committee’s criteria, proffer a potential avenue through which the Houthi authorities may circumvent the import restrictions of Decree 75.   

Bankers: Fuel Imports Primary Cause of Rial Instability

On October 11, the Yemeni Banking Association in Sana’a published the findings of a survey it had sent to Yemeni commercial banks. The survey asking the bankers what they regarded as the factors contributing to the Yemeni rial’s (YR) rapid depreciation in August and September this year. The primary factor the bankers identified, above all others, was the increased demand for foreign currency in the market spurred by importers of fuel derivatives.    

Sources: CBY, WFP, Sana’a Center Economic Unit

Yemeni Rial Fluctuates Wildly Throughout October

Since August 2018, the value of the Yemeni rial (YR) has experienced several waves of fluctuation. On October 1 alone, the YR’s value dropped 9 percent relative to the US$. This followed a 54 percent loss of value between July and September this year. In March 2015, when the current conflict intensified, the exchange rate had been YR215 per US$1.

In the first week of last month, the rial started to show signs of recovery, rebounding from YR765 per US$1 at the end of September to YR720 per US$1 by October 7. This was concurrent with the Saudi announcement of a US$200 million grant to the Aden-based CBY to shore up foreign currency reserves and support the rial. This comes in addition to the US$2 billion deposit Riyadh made at the Aden-based CBY earlier this year to allow it to finance imports of essential commodities and support the value of Yemen’s domestic currency. Also likely impacting the YR value, on October 3 global oil prices began a sustained slide.

In the second half of October, the rial entered another phase of depreciation, at its lowest trading in the range of YR730-760 per US$1. As of November 3, the rial had again regained ground to YR700 per US$1, after the Aden-based CBY announced the approval of US$170 million to finance the importation of basic foodstuffs, offering traders a preferential exchange rate of YR585 per US$1. In addition, the recent appreciation in the YR followed the arrival of a long-promised Saudi fuel grant amounting to US$60 million. This is part of a monthly grant Riyadh has allocated to support power plants in areas controlled by the internationally recognized government.

Houthis Appoint Governor for Sana’a-based CBY

In mid-October, the Houthis officially appointed Mohammed al-Sayani as the governor of the Sana’a-based CBY. Al-Sayani had been appointed deputy governor at the CBY in August 2012. Since President Hadi fired the previous CBY governor, Mohamed bin Humam, and officially relocated the CBY headquarters from Sana’a to Aden in September 2016, al-Sayani has been heading operations at the Sana’a-based CBY. His appointment as governor is thus essentially an official recognition of a role he had already been playing.

The Houthi appointment of a central bank governor is symbolic, however, of Houthi attempts to establish an independent monetary authority in areas they control. This, along with the undermining of the Economic Committee and the Aden-based CBY, is strategically important for the Houthis on various fronts, including to prevent the marginalization of Houthi-linked businesses and maintain their respective market share. as well as to allow liquidity to continue to flow through unofficial financial networks – namely money exchangers and the black market. A fully empowered Economic Committee would also help legitimize the Aden-based CBY and the Yemeni government.

The Houthi authorities also made two other notable appointments at the Sana’a-based CBY. The new deputy governor al-Shami had previously worked closely with Mohammed al-Houthi at the Supreme Revolutionary Committee, and in May 2018 had been appointed Undersecretary of the General Authority for Zakat. Youssef Zabara was also appointed Deputy Governor for Banking Supervision Sector.

UN Special Envoy: Economic Crisis the Top Priority in Yemen

On October 4, the UN Special Envoy to Yemen Martin Griffiths said that the plummeting value of the Yemeni rial should be the top international priority regarding Yemen and stressed the need for an emergency plan to help address this crisis. He explained that the plan could be formulated in a collaboration between the World Bank, the International Monetary Fund, UN agencies, Arab Gulf countries, and the internationally-recognized Yemeni government. On October 30, Griffiths stated that confidence-building measures for future negotiations would focus on “enhancing the capacities of the Central Bank of Yemen.”

The Special Envoy has, on multiple occasions in recent months, attempted to arrange meetings in Nairobi between representatives from the Sana’a and Aden-based CBY branches. These efforts aimed to kickstart the process of reunifying the CBY,. However, Griffiths attempts to stage these meetings failed. Moves by both the Economic Committee, the Aden-based CBY, and the Houthi authorities in Sana’a in October have likely increased the difficulty the Special Envoy faces in bringing together the CBY representatives.

In early November, Griffiths staged expert-level consultations in Amman, among which the topics of discussion included Yemen’s economic situation. Given the lack of influential decision makers at the meeting, however, there were little substantive outcomes.

 

Humanitarian Developments

UN Warns of Worst Famine in a Century

On October 15, the UN warned that Yemen was on the brink of the “worst famine in 100 years.” Lise Grande, the humanitarian coordinator for Yemen, said that mass starvation could engulf the country in the next three months, should fighting continue. Violence continues to impede the passage of aid and essential goods, while the rapid depreciation of the rial has caused fuel and food prices to soar – pushing almost two-thirds of the country’s population into food insecurity.  

Source: WFP and Sana’a Center Economic Unit Survey for October 2018

In a briefing to the UN Security Council on October 23, Mark Lowcock, the UN’s humanitarian coordinator, said that his September estimate of the number of Yemenis facing pre-famine conditions was incorrect, adjusting the number from 11 to 14 million half the country’s population. Lowcock added that the risk of famine was currently greater than at any other point in Yemen’s war, owing chiefly to fighting around Hudaydah and the economic crisis. He slammed government regulations on imports of essential commodities, saying that vessels carrying much-needed fuel had been refused entry in the days preceding, and cautioned against the extension of the regulations to food imports scheduled for November (see above ‘Economic Committee Implements New Fuel Importation Regulations). In addition to a humanitarian ceasefire, Lowcock recommended a swift injection of foreign currency into Yemen’s economy to buttress the plunging rial. (For more on the connection between famine and the collapsing currency, see “Famine at Hand Without a Reunified Central Bank to Protect the Yemeni Rial”).

Cyclone Luban Hits Mahra

On October 14, Cyclone Luban made landfall in Yemen’s eastern Mahra governorate, with the UN estimating that 2,200 families were displaced by the storm. Mahra’s Emergency Operations Room confirmed three deaths and more than 100 injuries. Heavy floods damaged houses, water and electricity infrastructure in a number of districts, and blocked the main road linking Mahra to Hadramawt governorate, impeding humanitarian access. On October 15, the government declared Mahra a disaster zone.

The United Nations Population Fund, the Saudi King Salman Relief Centre, the Oman Charitable Organization and other national and international organizations assisted in providing tents, blankets, mattresses, humanitarian assistance, food baskets, and other emergency and medical supplies. In August OCHA reported that less than five organizations operate in Mahra, and in some districts organizations have no presence.

By October 21, rainfall had ceased in a number of Mahra’s cities and water levels in valleys had begun to decline. The numbers of displaced were reported to have decreased, with families returning to their homes. Following a visit to the governorate, Yemen’s new prime minister, Maeen Abdelmalek Saeed, announced on October 27 the allocation of YR2 billion for reconstruction in Mahra.

Other Humanitarian Developments in Brief

  • October 2: The World Health Organization (WHO) said cholera was on the rise again in Yemen, with 10,000 suspected new cases reported each week. In the first week of October, a six-day joint WHO-UNICEF campaign vaccinated more than 300,000 people in parts of Hudaydah and Ibb governorate.
  • October 7: UNICEF announced the third cycle of cash support assistance in Yemen – estimated to reach 1.5 million families. The World Bank-supported program began in August 2017 and aims to boost civilian purchasing power amid the rial’s rapid devaluation
  • October 21: Yemen’s education minister, Abdullah Lamels, said in a forum in Tunisia that more than one million children have been unable to attend school because of the conflict. He added that since the war started, more than 3,600 schools have closed down across the country.
  • October 22: Saudi Arabia and the UAE announced a US$70 million donation earmarked for salary payments to 135,000 teachers in Yemen.
  • October 30: As of this day, the UN and partner organizations had received 70.7% of the US$3 billion requested to implement its 2018 humanitarian response plan for Yemen.

 

Human Rights and War Crimes Developments

Airstrikes Kill Tens of Civilians in Hudaydah Governorate

On October 13, Saudi-led military coalition airstrikes hit mini buses passing a Houthi checkpoint in Jabal Ras town, Hudaydah governorate. The attack killed 15 civilians and injured 20, according to the UN. On October 24, airstrikes hit a vegetable packaging factory in Bait al-Faqih district, Hudaydah governorate, killing at least 21 civilians and injuring 10. On the same day, another three civilians were killed and six injured when airstrikes hit three vehicles in Hudaydah’s al-Hali district.

Houthis Detain Protesters in Sana’a and Ibb

On October 6, demonstrators turned out in Sana’a following calls on social media for protests in Tahrir Square against the declining economic conditions, under the slogan “The Hunger Revolution.” Houthi forces deployed across the city and at checkpoints prior to the demonstrations, including Houthi-trained female security forces, according to a female university student who spoke with the Sana’a Center. During the demonstrations, dozens of protesters were beaten and arrested. The female university student, who was among those arrested, said those detained were taken to a police station, investigated, and forced to sign pledges that they would not partake in future protests.

Simultaneous protests also occurred in front of Ibb University, according to online newspaper al-Masdar. Houthi forces responded similarly, with those arrested transferred to the Political Security building, but subsequently released.

Houthi media said the protesters were “mercenaries tasked by the aggressors to plant rumours and disturb public peace.” The official Houthi TV channel al-Masirah had, the day before the protests, aired a video about human rights activist Ali al-Sharabi, whom the Houthi Political Security forces had detained on September 18. Al-Sharabi appeared disheveled  in the video, in which he confessed to purposely instigating the demonstrations to stir unrest.

Prior to his arrest, al-Sharabi had been working in the Ministry of Civil Services as a department manager and regularly published statements critical of the armed Houthi movement on social media. On October 22, his family was allowed to visit him for the first time since his arrest.

Other Human Rights and War Crimes Developments in Brief

  • October 5: Ali Zaki al-Saqaldi, an Islah member and correspondent for al-Masdar in the southern city of al-Dhale, was killed by unknown gunmen.
  • October 5: Houthi forces shelled the bin Jaber camp for Internally Displaced People (IDPs) in Hudaydah city, killing one woman and injuring 12 civilians.
  • October 6: Artillery fire on an IDP camp in the Khoukhah area of Hudaydah City killed a civilian and injured 12 others, according to the UN.
  • October 16: Houthi landmines killed six civilians and wounded dozens in Tahyta district in Hudaydah city, according to Al-Masdar.
  • October 20: An airstrike killed one civilian and injured four, near a fuel station on Zayed Street in Hudaydah city.
  • October 21: Airstrikes on a vehicle traveling in the Bani Hasan area in Abs, Hajjah governorate, killed two civilians and injured three.
  • October 22: Two photographers were kidnapped by Houthi forces in Hudaydah City according to Al-Masdar.
  • October 22: The Yemeni Journalists Syndicate reported that the third quarter of 2018 – July 1 through September 30 – had seen 35 “violations” against the media. These included four members of the press murdered, 11 kidnapped, six attacked, and 14 detained under harsh conditions in Sana’a. The syndicate implicated all parties to the conflict in these violations.
  • October 25: Houthi security forces raided a civil society event in Sana’a regarding intolerance in Yemeni media. Among those arrested were the former head of Yemen’s Journalists Syndicate, Abdulbari Taher, as well as some of the country’s most respected media figures and intellectuals.    

This report was prepared by Waleed Alhariri, Holly Topham, Hussam Radman, Ghaidaa Alrashidy, Anthony Biswell, Sala Khaled, Aisha al-Warraq, Ali Abdullah, Victoria K. Sauer, Hamza al-Hamadi, Taima al-Iriani and Spencer Osberg.


The Yemen Review – formerly known as Yemen at the UN – is a monthly publication produced by the Sana’a Center for Strategic Studies. Launched in June 2016, it aims to identify and assess current diplomatic, economic, political, military, security, humanitarian and human rights developments related to Yemen.  

In producing The Yemen Review, Sana’a Center staff throughout Yemen and around the world gather information, conduct research, and hold private meetings with local, regional, and international stakeholders in order to analyze domestic and international developments regarding Yemen.

This monthly series is designed to provide readers with contextualized insight into the country’s most important ongoing issues.

This month’s report was developed with the support of the Kingdom of the Netherlands and the Friedrich-Ebert Yemen office.

Famine at Hand Without a Reunified Central Bank to Protect the Yemeni Rial

Famine at Hand Without a Reunified Central Bank to Protect the Yemeni Rial

Sana’a Center Editorial

The largest threat facing millions of Yemenis today is not the violence of war but the collapse of the local currency the war has brought on. Put differently, while bullets and bombs harm the individuals on the receiving end, a collapsing currency – in a country overwhelmingly dependant on imports – makes it harder for everyone to feed themselves. This crisis was not inevitable. It was man-made.

By the end of September, the Yemeni rial (YR) had dropped to close to a quarter of the value it had when the conflict escalated in March 2015 – from YR215 per United States dollar (US$) to YR760 per US$1 over that period. This decline has accelerated recently, with the rial dropping 40 percent in value relative to the US$ between August and September alone.  

Prices for everything in Yemen have skyrocketed and by mid-September a nation-wide fuel crisis had descended. The UN subsequently reported that another 3.5 million people were potentially in need of emergency food assistance, bringing the total number of Yemenis facing starvation to almost 12 million. This is not because there is no food. It is because people cannot buy it. This is a problem that can be fixed if there is the will to do so.

First, the Central Bank of Yemen (CBY) must be reunified. The internationally recognized Yemeni government’s decision in September 2016 to relocate the CBY headquarters from Sana’a to Aden left Yemen with two central banks. With each operating independently from the other on either side of the war’s frontlines, neither has been able to effectively steward the currency or the economy. Multilateral pressure must be brought to bear on both the Yemeni government and the armed Houthi group to allow the CBY to reunify, and for that reunified entity to be able to operate independently from the belligerent parties. UN Special Envoy for Yemen Martin Griffiths has said economic de-escalation of the conflict is now his top priority; reunifying the CBY must be the central focus of these efforts.

Second, the international community – in particular Gulf states such as Saudi Arabia and the United Arab Emirates who are primary parties to the war in Yemen – must provide the CBY with the financial resources to address the shortage of foreign currency in the Yemeni market. While Saudi Arabia deposited US$2 billion in the Aden-based CBY earlier this year to support the value of the rial, the conditions Riyadh placed on the CBY’s use of these funds, and the restrictions the Aden-based CBY has placed on their disbursement, have severely limited their impact. And even this amount is still likely insufficient, according to former CBY Governor Mohammed bin Hummam, who discussed the currency crisis with the Sana’a Center in September.

Keep in mind that this month Gulf neighbors offered Bahrain US$10 billion in financial support, and in August Qatar loaned Turkey US$15 billion to save the Turkish lira from collapse. Neither of these countries faces mass famine, and a fraction of the assistance they received could save millions of lives in Yemen. Indeed, a fraction of the billions of dollars the coalition has spent on its military campaign in Yemen for more than three-and-a-half years could end the country’s food crisis.  

Saudi Arabia must also stop expelling Yemeni expat workers by the thousands as part of its labor nationalization campaign. Since Yemen’s oil and gas exports ceased in March 2015, the country’s largest source of foreign currency has been remittances, with the majority of these coming from Saudi Arabia. The humanitarian catastrophe in Yemen is only amplified by every expat worker who is forced to return home.     

The Yemeni government must also stop paying civil servant salaries through ordering the Aden-based CBY to print new rial banknotes. Expanding the money supply in this way will depreciate the rial further. Instead, all efforts must be made to restore Yemen’s oil and gas production – previously the country’s largest source of foreign currency and government revenue – to full capacity. Until then, Gulf countries must help provide the hard currency resources to cover the Yemeni government’s public expenditure bill. Simultaneously, the newly appointed Yemeni Prime Minister Maeen Abdulmalik must activate transparency mechanisms, address the corruption allegations his government faces, and eliminate the lavish spending of high-ranking officials.

In September, the Aden-based CBY announced that it would speed up the process by which fuel and commodity traders can qualify for import financing – the CBY’s primary means of influencing the currency market. It also said it would work with Yemeni banks and money exchangers to regulate the currency market and protect the rial. However, given that almost all of Yemen’s largest financial players are based in Sana’a, the Aden-based CBY’s influence with them is limited. Thus, the Aden-based CBY’s plans, while well intentioned, are likely to be ineffective.

Yemen’s humanitarian crisis is in reality an economic crisis, and one caused by the deliberate decisions of the stakeholders involved in the conflict. They have the means to end the crisis. If they do not, they will be culpable for the mass starvation that ensues.

For more details, please see The Yemen Review – September 2018.  

The Yemen Review – September 2018

The Yemen Review – September 2018

In September, the Yemeni rial’s recent decline accelerated precipitously, with the currency’s value dropping to record lows by month’s end. While the rial has been under multiple, intensifying pressures stemming from the war for several years, a large increase in the money supply – through a 30 percent increase in civil servant salaries – and the collapse of peace talks last month appear to have spurred a rial sell-off in the market.
A nation-wide fuel shortage ensued. Retail fuel stations closed en masse and prices for available petrol on the black market jumped an average of 130 percent relative to August, and as much as 230 percent in some areas.

The Yemen Review – August 2018

The Yemen Review – August 2018

In the last six days of August the Yemeni rial entered one of its steepest and most rapid declines in value since the conflict began, resulting in sudden price spikes for basic foodstuffs. Given Yemen’s overwhelming dependence on imports to feed the population, such changes in the rial’s value have direct implications for the country’s humanitarian crisis.