Yemen’s recent announcement to restart oil exports signifies a pivotal moment for its economy, which has suffered immensely due to years of conflict. As the government seeks to stabilize its financial resources, there’s cautious optimism that this move will not only generate much-needed foreign currency but also enhance public services and salaries for citizens. However, restoring exports is not merely a political decision; it requires a complex interplay of security measures and market confidence to ensure safe transport and continuity in production.
Yemen’s Presidential Leadership Council, led by Rashad al-Alimi, has announced the resumption of oil exports starting July 20, a move many hope will reinstate the country’s most vital source of foreign currency. The Yemeni government, grappling with economic challenges and the ongoing Houthi rebel control over significant territories, views the return of oil revenues as essential for paying salaries, enhancing services, and stabilizing the economy.
The transportation of oil from Yemen’s fields to global markets involves more than just a political decision; it necessitates establishing a secure environment that protects facilities, pipelines, and ports. Additionally, it requires rebuilding the confidence of shipping and insurance companies, as well as international purchasers, after years of conflict. As tensions threaten to escalate once again in Yemen, the government may find that achieving the stability needed to resume oil exports remains an uphill battle.
Yemen’s oil reserves are estimated at around three billion barrels, predominantly located in the Masila, Marib, and Shabwa basins. The U.S. Energy Information Administration (EIA) affirms that Yemen still possesses significant production capacity. However, the country’s oil output, which peaked at approximately 439,000 barrels per day (bpd) at the start of the millennium, has dramatically declined due to the war and attacks on oil infrastructure. By 2024, production is expected to hover around 19,000 bpd, as reported by the International Monetary Fund (IMF).
Following the export halt, a report from S&P Global estimates actual production in 2023 and 2024 at just 7,000 to 10,000 bpd, mostly consumed locally. Yemeni Minister of Oil and Minerals, Mohammed Bamqaa, announced plans to deposit new export revenues into the Central Bank, indicating that existing oil stockpiles exceed 1.7 million barrels, which are ready for export. He is optimistic that initial production will reach about 60,000 bpd, with oil companies directed to devise timelines for increasing output by up to 25 percent within the first month of resuming exports.
Economic expert Mohammad al-Kasadi predicts that while 60,000 bpd is achievable, not all of this volume will be available for export, as the domestic market requires around 20,000 bpd for refineries and power plants. Hassan Mohammed Moghalis, another analyst focusing on Yemeni affairs, notes that fields in government-controlled areas can still produce, particularly the Masila fields in Hadramout and the al-Uqla fields in Shabwa, which are crucial for any potential revival of exports.
Maintaining and restoring these oil production capabilities, however, hinges on ensuring that facilities are adequately maintained and secure. Moghalis points out that resuming exports isn’t as simple as restarting pumps; technical reviews and repairs on pipelines and pumping stations are necessary to guarantee their readiness.
Despite the prospects of restarting production, challenges extend beyond the fields to the ports where oil is less sought after due to previous Houthi attacks that have rattled the market’s stability. These incidents have prompted shipping and insurance companies to adopt a more cautious approach to Yemeni crude, leading to increased insurance costs and affecting buyers’ willingness to invest in contracts.
Houthi demands for a share of revenues in order to normalize export operations pose an additional hurdle. Al-Kasadi emphasizes the importance of nurturing market confidence, asserting that successful export efforts will rely on buyers’ chances of receiving the oil safely amid ongoing security concerns.
Al-Ansi, a Yemeni affairs specialist, cautions against overemphasizing the immediate benefits of resumed exports. He notes that while increased oil sales could enhance foreign currency flow and stabilize the Central Bank’s operations, they alone will not resolve Yemen’s multifaceted economic crises, which include the ongoing division between government- and Houthi-controlled territories and declining economic activities.
To effectively translate oil income into tangible benefits for Yemenis, the management of these resources is crucial. Successful initial shipments could rejuvenate market confidence, but the sustainability of these exports is paramount for long-term economic recovery. The cessation of oil exports has not only deprived the government of revenue but has also intensified the pressure in Yemen’s foreign exchange market, with inflation affecting essential goods and the livelihood of ordinary citizens. The prevailing monetary division between the Central Bank in Aden and Houthi-controlled Sanaa complicates monetary policy and diminishes authorities’ abilities to utilize oil revenue cohesively.
While Saudi financial support has recently assisted in reducing currency volatility within government-controlled regions, experts stress that consistent and sustainable oil revenue flow is essential for economic stability, emphasizing the challenge of achieving such stability amid the simmering conflict that Yemen currently faces.
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