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The Houthis’ Economic War Threatens Lasting Peace in Yemen

Amid United Nations and Saudi diplomatic efforts to end the war in Yemen, the Houthis are limiting the access of Yemen’s U.N.-recognized government to energy resources and revenue. The Houthis aim to weaken the U.N.-recognized government’s leverage at the negotiating table and boost their own finances, suggesting that the Houthis’ primary interest in negotiations is not reaching a settlement but rather capitalizing on talks to strengthen the economic foundation of their de facto state. The Houthis have implemented this strategy in parallel with negotiations with Riyadh, underscoring that while bilateral Saudi-Houthi talks may be able to de-escalate the conflict on Saudi Arabia’s southern border, they will be insufficient to build a lasting cease-fire among Yemen’s competing factions and ultimately rebuild a unified Yemeni state.

Targeting Energy Resources and Revenue

Shortly after the Houthis entered Omani-mediated talks with Saudi Arabia in October 2022 following the expiration of a U.N.-sponsored truce, they carried out drone attacks on two oil ports in areas held by the U.N.-recognized government. The attacks didn’t cause any damage to infrastructure, but they prevented foreign oil tankers from entering the ports, impeding oil exports at a time when the Yemeni government’s oil revenue was surging due to a global rise in energy prices. Since the attacks, which the government estimates resulted in $1 billion in lost revenue, the government has had increased difficulty paying public salaries, hurting army and police morale.

The Houthis are also pressing importers to redirect energy shipments from Aden to Hodeidah, the main Red Sea port city still under the group’s control, thus diverting customs revenue from the government. According to reports from government officials, the Houthis recently banned gas imports from government-controlled Marib and replaced domestic gas with more expensive cooking gas imported through Hodeidah port, further straining the government’s finances. The Houthis control approximately one-third of the country’s territory, which contains 70% to 80% of the population.

The Houthis’ “State” Economy: Legal and Illegal Revenue

The Houthis use both legal and illegal sources of revenue to ensure the survival of their de facto state and enrich the group’s leadership. A February report by the U.N. Panel of Experts on Yemen found that the Houthis generate revenue by collecting taxes and customs duties as well as by arbitrarily demanding money at checkpoints, confiscating land, property, and bank deposits, and, likely, trafficking drugs. About 70% of Yemen’s total tax revenue, including customs duties, is collected in Houthi-controlled territory.

One of the Houthis’ main revenue sources is the sale of smuggled oil products on Yemen’s black market. Additionally, oil imports through Hodeidah port “increased significantly” after a national truce was reached in April 2022, generating consistent customs revenue for the Houthis, the U.N. stated. While the group doesn’t control Yemen’s oil and gas fields, it has ambitions to develop an energy industry. Houthi officials have called on foreign companies to invest in oil exploration in Houthi-held areas and warned foreign oil firms against doing business with the Yemeni government. The Houthis’ intermittent military offensives against energy-rich Marib governorate suggest that they have yet to rule out seizing oil and gas fields. In the meantime, the group is focused on denying the government energy revenue.

Saudi Arabia and Its Military Disengagement at Risk

The U.N. panel also included “foreign sources” among the Houthis’ revenue channels. While Iran is certainly among those sources, the Houthis have a diverse portfolio of revenue sources and are not dependent on Iran, which helps them retain autonomy in decision making. As the Houthis are a strategic ally and not a proxy of Iran, the recent Saudi-Iranian rapprochement won’t be enough to bring lasting de-escalation to Yemen – though it certainly reduces the regional dimension of the conflict.

Not only has Saudi Arabia’s implicit recognition of the Houthis as interlocutors likely emboldened them to demand more in negotiations, the Houthis’ revenue war against Yemen’s U.N.-recognized government endangers Saudi goals in Yemen. In fact, if Riyadh succeeds in striking a deal narrowly focused on security on its southern border, the agreement could be threatened if the Yemeni government is denied full access to its energy resources and revenue. Pro-government forces and Southern armed groups would likely reignite clashes if the Houthis try to deprive them of energy revenue, as it would erode the U.N.-recognized government’s remaining state capacity and threaten Southern aspirations for an independent state. If renewed fighting broke out, the United Arab Emirates would likely step up support for anti-Houthi forces: The Emiratis maintain strong political linkages with local forces, and, in late 2022, the UAE and Yemen signed a security and military cooperation deal.

Such a spiral of tension would reduce the likelihood of a lasting cease-fire (or truce extension) and could threaten Saudi Arabia’s security. As Saudi Arabia continues its push for a negotiated exit from Yemen, the more concessions it makes in talks, the less room there may be to maneuver vis-à-vis the Houthis. This eventuality, with its potential for helping reignite military clashes among the contending Yemeni parties, could endanger Riyadh’s own strategy of military disengagement from Yemen, if the Saudis calculate the risks of ongoing fighting outweigh the benefits of withdrawing and disengaging. The Houthis’ revenue war affects Yemenis first and foremost, but it’s far from a Yemeni-only affair

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