On February 21, 2023, Saudi Arabia signed an agreement to deposit $1 billion into the central bank of its middle eastern neighbor to the south, Yemen. Saudi Arabia and the United Arab Emirates (UAE), in April 2022, promised $3 billion worth of aid to Yemen’s internationally recognized president, Rashal al-Alimi, in a bid to bolster the country’s struggling economy. Saudi Arabia’s recent support to Yemen aims to assist the Riyadh-backed government to introduce much-needed economic reforms.

The Crisis in Yemen

According to the World Bank, Yemen’s GDP per capita, steadily declining since the onset of the war in 2014, stood at $701.7 in 2018. This decline is likely the result of many governmental issues, but primarily an ongoing civil war entering its ninth year. According to the United Nations Population Fund, as a result of the devastating conflict, 21.6 million Yemeni people need humanitarian aid in 2023. About 80% of the population lives in conditions of poverty, struggling to secure their basic needs, including access to water, food and health services.

The conflict started when Houthi rebels took control of the country’s capital, Sanaa, with demands for lower fuel costs, which in January 2015, forced the Yemen government into exile. Later in March 2015, with U.S. support, Gulf states, including the UAE, driven by Saudi Arabia, began to push for “economic isolation and air strikes” against the Iran-backed insurgents.

Even with the help of multiple powerful countries, the civil war has all but torn to pieces Yemen’s already struggling economy. According to the Department of State, since the onset of the war, as of 2022, the U.S. has provided close to $4.5 billion worth of humanitarian aid to struggling Yemeni people.

Once importing 40% of its grain from Ukraine, food prices have skyrocketed in Yemen since supply chains came to halt following Russia’s invasion of the Eastern European country in February 2022. Additionally, oil refining and exportation — Yemen’s primary sources of income — have slowed acutely since Houthi attacks on tankers and crucial processing facilities.

According to the Middle East Institute, “…given that most of the oil exported from Yemen’s southern terminals is pumped out of fields in the southern part of the country, the Houthis’ attacks could reignite historical grievances over the distribution of resources.”

In an attempt to pay off debts and finance public work sector salaries, the Aden branch of the Yemeni central bank has printed new banknotes, increasing inflation in turn. Insurgent-regulated regions do not accept currency printed by the central bank of Aden.

Looking Ahead

The money that Saudi Arabia and the UAE pledged intended to combat these issues, however, it remains unclear as to whether Saudi Arabia’s recent support to Yemen in late February forms part of the $3 billion promise made with the UAE in April 2022.

Headquartered in Abu Dhabi and a sub-organization of the 22-member Arab League, the Arab Monetary Fund will help to ensure the correct use of Saudi Arabia’s recent support to Yemen in the form of the $1 million deposit. The financing intends to fund new initiatives to spur economic growth and address poverty in Yemen while “stabilizing the currency.”

A delicate ecosystem, the Arabian Peninsula is crucial in world oil and petroleum exports. Yemen sits at the very tip of the peninsula and Saudi Arabia neighbors it to the north and Oman neighbors it to the northeast. Aid pledged to Yemen is almost sure to have positive effects on Middle Eastern economies and the U.S. as supply chains are symbiotic relationships between countries.

– Stella Tirone
Photo: Flickr