Executive Summary

Following a rapid military advance into eastern Yemen, forces affiliated with the UAE-backed Southern Transitional Council (STC) were pushed out of Hadramawt and Al-Mahra in early January by Saudi airstrikes, Saudi-backed troops, and local tribal forces. STC leader and Presidential Leadership Council (PLC) member Aiderous al-Zubaidi reportedly fled into exile. All Emirati soldiers have now left the country, the STC has been officially dissolved, and other UAE-backed forces are being brought into the Saudi fold. Through a broad political and military restructuring, Riyadh is now seeking to remake the balance of power in the government-held Yemen, where it holds unrivaled sway for the first time since the war began.

A new Yemeni government was announced on February 6, following weeks of contentious horse-trading. An agreement was reached for a 35-member cabinet, with portfolios distributed between the north and the south, but with specific seats reserved for eastern Yemen, underscoring its importance to Riyadh. Three women were included in the cabinet; there had been no female ministers for the past six years.

The Saudi Foreign Ministry announced it would host a dialogue in Riyadh, bringing together southern factions to develop “fair solutions that meet the legitimate aspirations of the people of the South.” But plans for the talks were scaled back and then postponed. It now appears that the dialogue may not take place at all, or at least not in the first half of 2026.

One month into the United States and Israel’s war on Iran, the Houthi group (Ansar Allah) belatedly joined the hostilities, firing missiles at Israeli military sites on March 28, and announcing a string of further attacks the following week before a ceasefire was announced. The Houthis’ apparent restraint raised fresh questions about the group’s intent. The group has repeatedly threatened to attack shipping in the Bab al-Mandab, which would put further pressure on oil prices and the Gulf economies, but would also bring the group into conflict with Saudi Arabia. The Houthis are likely holding out hope that a mooted Saudi peace plan could be revived.

Yemen’s frontlines have largely withstood the sweeping changes to the anti-Houthi coalition. The Houthis made a number of probing attacks, particularly on frontlines in Hudaydah, Marib, and Taiz, but have refrained from exploiting the turbulence on the government side. The group is thought to still be recovering from last year’s US and Israeli airstrikes.

Thousands of STC supporters have taken to the streets in numerous protests across the south over the past three months. With the STC’s activities still banned in multiple districts, these protests have emerged as a primary vehicle for southern resistance, creating a dynamic that threatens to deepen the longstanding tensions between the state and the thousands of pro-STC civilians who still see the group as the legitimate governing authority. Some of the demonstrations have turned violent – clashes with security forces led to deaths of protesters in Shabwa, Aden, and Hadramawt.

Saudi Arabia announced a US$90 million package to pay delayed public-sector salaries, including those of military and security personnel, and a further 1.9 billion Saudi riyals (US$507 million) to fund development projects in the health, education, energy, transportation, and water sectors. The support is intended to bridge the funding gap left by the UAE’s withdrawal. Riyadh later announced a 1.3 billion Saudi riyal (US$347 million) grant to help cover the budget deficit and national wage bill. Riyadh has also begun directly sponsoring security and military forces previously funded by Abu Dhabi.

In early March, the new cabinet enacted an official state budget for 2026, the first since 2019. The move was a prerequisite set by Riyadh for continued aid, designed to ensure transparency and fiscal accountability. However, the budget was not based on realistic fiscal indicators, but instead built on the 2014 budget, which had projected a deficit of approximately US$3 billion.

OCHA reported that the 2025 Yemen Humanitarian Response Plan received only US$687.9 million, or 28 percent of the requested US$2.48 billion, representing the lowest funding level in ten years. Despite escalating needs, the severe funding shortfall forced all clusters to scale back critical services.

The US Department of the Treasury’s Office of Foreign Assets Control (OFAC) escalated its campaign to financially isolate the Houthis, designating 21 individuals and entities and one vessel that have transferred oil products, procured weapons and dual-use equipment, or provided financial services for the Houthis.

The government has initiated a series of interventions to address the dual crises of electricity blackouts and cooking gas shortages, which have severely affected citizens in Aden and neighboring governorates. Supply disruptions are being driven by a combination of localized blockades disrupting supply routes and broader political instability.