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No respite in Yemen

The oil price collapse dims hope of an energy sector revival, while civil war grinds on

Few would have bet on conflict in Yemen, which began in March 2015, lasting more than a year. Now few are betting that it will come to an end in 2020. And any hope that, when the fighting does finally cease, bumper revenues from oil and LNG exports might help the country out of its current morass has been severely dented by the collapse of global oil prices.

Yemen was never a major oil exporter, but the regeneration of its energy sector is regarded as a key element in the country’s gradual return to something approaching normal life. Oil production fell from 316,000bl/d in 2008 to 153,000bl/d in 2014, a year before the outbreak of war. It then dropped away completely as international oil companies left, before reviving to around 60,000bl/d in 2019. The war also caused the closure of Yemen’s LNG plant at Balhaf. The 6.7mn t/yr Total-operated facility is undamaged and could be restarted once the fighting ends and the supply of gas feedstock from Block 18 in the Marib basin resumes.

6.7mn t/yr Balhaf LNG plant capacity

Getting to a point where oil and LNG exports might restart is proving difficult. Saudi Arabia, the leader of the Arab coalition seeking to crush the country’s Houthi rebels, announced a two-week unilateral ceasefire leading up to the start of the Islamic fasting month of Ramadan.

The Houthis, however, did not join the truce. Nonetheless, the Saudis have now extended the ceasefire for the duration of the sacred month.

Over recent months, with the United Arab Emirates and Sudan withdrawing forces from Yemen, the Houthis have been able to capture more territory from the army of the internationally recognised Yemeni government. Crucially they made significant advances towards Marib governorate, the centre of Yemen’s oil production. The oil price slump is not deflecting the Houthis from their determination to capture this area.

“Lower oil prices make little difference to the course of the Yemen war,” says Andrew Whitley, a long-time Middle East analyst and former UN official.

“The trend lines were already set before the latest collapse in prices. The Houthis remain confident they can make further gains in Marib governorate before entering into UN-sponsored peace talks from a position of strength.”

But it may alter Yemeni dynamics in one crucial way—namely, Saudi Arabia’s role in the conflict.  In Whitley’s view, “low oil prices add to the pressure on the crown prince, Mohammed bin Salman, to be able to deliver on his domestic reforms and meet the government payroll monthly bill”.

“Lower oil prices make little difference” Whitley

Faced with those pressures, MbS may have to accept that his Yemeni adventurism is not going to give him any win that distracts from domestic challenges. A face-saving way of withdrawing from a conflict that is burning a hole in the kingdom’s purse and damaging its international reputation may be a better option.

Potential disaster

A permanent ceasefire in Yemen would both enable oil and gas to flow again—and allow measures to avert a potential environmental disaster. Since the start of the war the oil tanker Safer, loaded with crude, has been moored off Ras Isa port, north of Hodeidah on the Red Sea.

UN attempts to persuade the Houthis to allow access to the tanker have failed. The UK has joined other states demanding urgent action. Its charge d’affaires at the UN, Jonathan Allen, warned that “a substantial leak from the Safer tanker would have a devastating effect on Yemen in the Red Sea”.

“And whilst negotiations are under way to find a diplomatic way forward, I urge the Houthis to allow either the removal of the oil or a repair mission to proceed. Their continued inaction on this issue is reckless,” says Allen.

But the Houthi rebellion is now just one of the myriad problems facing Yemen. Southern separatists have declared self-rule in Aden—until 1990, the capital of an independent South Yemen. Finding a path out of the conflict and reviving the energy sector gets ever more difficult.

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