What happens when Yemen runs out of oil?

By Ted Pikulsky, MA – Research Assistant, Washington College, MD  ’10

 

Yemen is a nation on the brink. Although ongoing for the past two years, more attention has been drawn to the civil war in Yemen due to the political turmoil being experienced across the MENA region since January 2011. In fact, the country is split along three completely separate fault lines, leading to further chaos than a simple two-faction conflict. First, the resource poor north is at war with the (relatively) resource rich south. Second, tribes loyal to President Saleh are at war with non-aligned tribes. Third, the Islamists are at war with the secularists. These various groups are by no means homogenous themselves and have varying motives ranging from the establishment of a new and unified government to secession and the breakup of the Yemeni state.

The recent events are symptoms of a larger issue and serve to highlight the real threat to Yemen’s future: The growing scarcity of essential resources. Oil production and export accounts for roughly 70-75 percent of government revenue and by some estimates, Yemen could run completely dry by 2017. 

Such speculation is not based in paranoia. As of January 2010 Yemen’s proved oil reserves were placed at 3.16 billion bbl (oil barrels). Despite some upsets to production in March 2011 and thanks to an emergency oil transfusion  from Saudi Arabia, oil production has leveled off to around 150,000 bbl/day (barely enough to cover consumption based on 2009 rates). Even at such a low rate of production, it is clear that not much time is left. An unstable state to begin with, when the petrodollars are finally cut off the results could be disastrous.

The central government has already received a taste of what could be in store when the oil finally stops flowing. Following the March 2011 bombing of the critical 140 mile pipeline that ran from the Maarib oil fields to the primary refinery in Aden, oil production effectively fell to zero throughout the spring. The suspected losses from this brief period of stopped output hover at the billion dollar mark. To an economy whose GDP is only $60 billion to begin with, and an annual deficit of approximately $2.5 billion, such a loss is catastrophic. The money that flowed from the central government to its tribal guarantors sustaining Yemen’s system of patronage effectively ceased. Since Saleh came into power thirty years ago the government has maintained a carefully designed network of money transfers and political appointments. As long as the central government has kept the roughly 4-5,000 tribal leaders paid-off they have been able to maintain their loyalty and control over regions that Saleh’s government would otherwise have difficulty maintaining. The money, like the oil, has slowed to a trickle.

Since the January protests calling for President Saleh’s ouster, a spotlight has been cast on the dangers brewing in Yemen. Intelligence officials have long been aware of the threat of extremism for which Yemen seems to be a breeding ground. It has become increasingly clear that AQAP (Al-Qaeda on the Arabian Peninsula) and other sympathetic groups have a strong presence in the country. Some speculations are that there are as many as 500 Al-Qaeda and sympathetic militants in Yemen already. What will happen to the Yemeni state as it exists today if the government totally collapses?

The United States has long had a close relationship with Saleh’s government. No small part of this is the strategic waterway that Yemen occupies. The Gulf of Aden is one of the most crucial waterways to international maritime economy and certainly for oil transport. It is no secret that the United States has taken a vested interest in protecting it since the British left in 1967.

Piracy is a major threat in the Gulf of Aden. While most attacks originate from Somalia, widely accepted to be a failed state, a stable Yemen is essential in staving off this threat. If Yemen were to collapse and Western navies were to lose the strategic foothold of Aden in the region, it is easy to foresee the increased danger to maritime activity.

Finally, Saudi Arabia has a vested interest in what happens in Yemen and to say the Royal Family is concerned is an understatement. Proof of this is the selling, turned “charitable contribution”, of 3 million bbl conceivably intended to prop up the flat-lining Yemeni government while it retakes and repairs the broken pipeline connecting Aden with Yemeni oil fields. Of course this amounts to sticking a finger in the dike, as it is yet to be seen what lengths Al Sa`ud will be willing to go to keep Yemen limping along.

The question remains: What will happen to Yemen when it finally runs out of oil? It is around the corner, yet no infrastructure or social organization exists to absorb the shock that will take place to the economy. Even if the money and/or resources existed, it is difficult to imagine that the appropriate safeguards could be put in place in time. There is no infrastructure or institutional mechanism to absorb or resolve any crisis—political or economic.

The Saudis have already begun to prepare for their eventual future of running dry (one that is considerably further off). They have instituted programs promoting both alternativeenergy and public education that will (theoretically) carry the country into a post-petrol economy. Of course this has been funded by massive amounts of oil money that Yemen could not have matched in its most productive years.

Is Yemen destined to become the Arabian Peninsula’s Somalia? Worse still for Yemen is that running out of oil is not the biggest catastrophe it will face in the near future. The desert nation is already beginning to exhaust its natural aquifers and has neither the money nor geography to take on desalination projects. If Yemen cannot survive an oil crisis, what government will be left to deal with a water crisis?

 

 

Ted Pikulsky is the Assistant to the Director of Communications at the Institute for National Strategic Studies, at the National Defense University. He is currently conducting research on media, communications and political processes. He holds a MA in History from Washington College and a BA in International Relations and Economics from Boston University.