The resurgence of oil exports: Will Yemen regain its financial footing? | | Oil and Gas News

Statement by the head of the Presidential Leadership Council in Yemen, Rashad al-AlimiThe resumption of oil exports from July 20 following a suspension that began at the end of 2022 has revived hopes that the Yemeni government’s most important source of foreign exchange will be restored. The government, which is struggling with a financial crisis and facing the continued Houthi insurgency in northwest Yemen, needs the money – and has pledged to use it to pay salaries, improve jobs, and help stabilize the economy.

However, the flow of oil from Yemen’s fields to international markets does not depend on political decisions; it wants to create a safe environment, after years of war, which allows the protection of land, pipelines and portsin addition to restoring the confidence of shipping and insurance companies, as well as international consumers.

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It is the war in Yemen threat of growth after four years of stability, the stability the country needs to resume oil exports may be difficult.

Export test

Yemen has proven oil reserves of up to three billion barrels, mainly concentrated in the Masila, Marib and Shabwa basins. Although the United States Energy Information Administration (EIA) shows that the country still has enough resources to produce and export, the security environment prevents their production and export to international markets.

Yemen’s oil production peaked at about 439,000 barrels per day (bpd) at the beginning of the millennium, but has since declined due to the depletion of some old fields. This decline was exacerbated by the outbreak of war in 2014 and the targeting of oil, settling at a level of 19,000bpd in 2024, according to the International Monetary Fund (IMF).

A report published by S&P Global estimated actual production, following the export freeze, at around 7,000bpd to 10,000bpd in 2023 and 2024, almost all of which was for domestic consumption.

Yemen’s Minister of Oil and Minerals, Mohammed Bamqaa, said that the export proceeds will be sent to the Central Bank as part of the government’s directive to strengthen the country’s economy, saying that there is more than 1.7 million barrels of oil ready for export.

Bamqaa added that total production will reach around 60,000bpd. He explained that the ministry has ordered the oil companies to schedule time to increase production and development of fields, in order to increase oil production capacity to 25 percent in the first month after the supply resumes.

The professor of economics at the University of Hadramout, Mohammed al-Kasadi, told Al Jazeera that although he hopes to produce oil to meet the figure of 60,000bpd mentioned by Bamqaa, the number does not reflect the amount of exports, because the local market uses about 20,000bpd to run refineries and electricity, which makes it almost 0.

Hassan Mohammed Moghalis, an expert on Yemeni affairs, told Al Jazeera that many farms in government-controlled areas remain productive. Finally there are the fields of Masila in Hadramout and the fields of al-Uqla in Shabwa, which represent the starting point for any resurgence. Moghalis explained that crude oil can be sent through pipelines to the Arabian Sea ports.

However, Moghalis said that the resumption of exports does not mean opening the valves, as some fields need to be repaired and reorganized after a long suspension. In addition, pipelines and pumping stations require a technical review to ensure they are ready for regular operation.

Market confidence

While it is important to resume production at the refinery, experts believe that there are major obstacles that await the oil once it reaches Yemen’s ports. The Houthi attacks targeting the export ports of Hadramout and Shabwa in late 2022 made shipping and insurance companies more cautious in dealing with Yemeni atrocities, raising the cost of insurance and weakening the interest of buyers to enter into contracts.

The Houthis have ordered the resumption of exports in order to receive a share of the revenue to pay government salaries.

Al-Kasadi, from the University of Hadramout, said that the government’s success in pumping oil to the port does not only improve the oil export business. Maritime transport is insurance companies in particular it focuses on the number of security threats and the possibility of ports or tanks facing new threats – currently a particular problem due to the Houthi attack on shipments built in Saudi Arabia, which supports the Yemeni government.

Al-Kasadi added that the oil market is highly dependent on trust and stability. Therefore, any export operation requires that the buyers trust that the goods will leave safely and that the export operations will not stop suddenly.

Moghalis, an expert, believes that providing military protection to ports and pipelines is the first step, but not the only one. It is also important to restore the confidence of insurance companies and international consumers, because oil does not reach the markets through production, but through an integrated system of transport, financing and insurance.

He added that every new attack on portseven if it doesn’t do much damage, it could be enough to bring the sector back, taking the shipping industry’s attention to risks rather than compromises.

But, as al-Kasadi said, resuming exports is necessary. He said that the suspension of foreign trade was not a problem of the oil sector, but it was a serious economic problem. The government lost its most important source of foreign currency, which affected the exchange rate of the Yemeni rial and the government’s ability to finance basic necessities of life.

Financial problems

Despite the importance of resuming exports, Yemeni affairs expert Abdul Karim al-Ansi warned of over-exploitation that could affect the Yemeni economy.

He told Al Jazeera that the resumption of exports will undoubtedly provide an important source of foreign exchange and make it possible for the Central Bank to support financial stability. However, it may not be enough on its own to solve it financial problemswhile the Yemeni economy is facing many problems related to the division between the areas controlled by the government and the Houthis, the lack of oil and the lack of economic activity.

Al-Ansi added that the way Yemenis benefit from oil money will ultimately depend on how the money is used and the government’s ability to spend it on wages and essential services, rather than on the amount of exports.

And while a successful initial export could send a positive signal to markets and investors, al-Ansi stressed that the real test will be whether exports can continue. Yemen’s economy needs a steady flow of foreign currency, rather than a steady stream of remittances that stop whenever security breaks down.

The suspension of oil exports has not only deprived the government of its most important source of income, but has also increased pressure on the export market. As the dollar’s rise from oil trade has slowed, the need for foreign currency has grown to support the purchase of essential goods, especially food, fuel and medicine. This deficit has weakened the Yemeni rial currency and increased inflation.

These problems are compounded by the division of money between the Central Bank in Aden and the Houthis in Sanaa, which has created two separate financial and exchange systems. This fragmentation creates financial instability and reduces the ability of government officials to use oil in a coordinated way to stabilize the economy.

Al-Kasadi said Saudi financial assistance to the government has recently helped to curb financial instability in areas controlled by the government. However, he emphasized that such support is not a substitute for stable and stable oil revenues – which require a period of stability, which could be difficult if the conflict escalates in Yemen, as it threatens to do.