The missing piece in Yemen

In its first month, the Biden administration made three consequential moves in Yemen.

Secretary of State Tony Blinken paused and then rescinded the foreign terrorist organization designation of the Houthis as the administration weighed the humanitarian costs of the designation on the Yemeni people. Next, Biden cut off arms sales of offensive weapons to Saudi Arabia in order to disentangle the U.S. from the war. Finally, the president appointed Tim Lenderking, the Deputy Assistant Secretary on the Yemen file for years, as the special envoy to help advance new diplomatic initiatives in support of the United Nations’ Special Envoy, Martin Griffiths.

The Biden administration, however, will have to face some brutal realities in Yemen. The Houthis responded to Biden’s policy openings by sending nearly daily drone strikes into Saudi Arabia and broadening its attacks on Marib, the natural resource-rich city 90 kilometers west of Yemen’s capital, Sana’a.

The humanitarian situation may worsen as the Houthis begin to expand its war effort. The United Nations humanitarian chief, Mark Lowcock, raised the alarm earlier this month declaring that an assault on Marib “would put 2 million civilians at risk, with hundreds of thousands potentially forced to flee — with unimaginable humanitarian consequences.” Simply stated, there is no political settlement to the conflict on the horizon, as none of the parties have an incentive to negotiate. In fact, the most likely outcome is that the civil war will descend further, with warlords exercising local, extractive authority. In the end, the Yemeni people will bear the costs of war, displacement, and despair.

The Biden administration’s approach misses the most important way forward — an economic strategy to improve household purchasing power. 

Specifically, the Biden administration could help improve the purchasing power by: (i) increasing supply and lowering costs of basic commodities, fuel and medicines; and (ii) stabilizing the currency and increasing household income through monetary and fiscal policy reforms. While humanitarian assistance does save lives, it does not change the economic and political calculus of the combatants. In short, the underlying incentives of the war economy must change. 

Step One: Increase supply and lower costs of basic commodities

The Saudi-led coalition in concert with the Hadi Government must open all land and air crossings as well as all seaports as expansively and efficiently as practicable. The Yemeni government can facilitate the ease of movement and imports, particularly of imported fuel derivatives, by breaking oligarchical and monopolistic interests and open competitive import markets and facilitate transit from the port to markets. 

President Biden has also unequivocally elevated Yemen’s acute food insecurity. The United States could assist by sending targeted aid to Yemen’s agricultural sector, which employs nearly half of the population. Mobilizing Yemen’s domestic food production would help in reducing Yemen’s reliance on food imports. 

Regarding land border crossings, the Saudis could open its Yemeni border crossings at al Tuwwal and al Khadra so commercial traders can access the port of Jizan in southern Saudi Arabia. Further, Wadiyah crossing could be more efficient with 24-hour access, more lanes, and improved scanning systems. While remote, land crossings via Oman should be available and could help to broaden the competitive marketplace. 

During a humanitarian emergency it is critical to expand private sector trade. To that end, the Yemeni government — through the Central Bank of Yemen, Ministry of Finance, and the commercial banking sector — must re-issue trade facilitation letters of credit for a broad and inclusive range of traders to import basic commodities through a transparent, publicly open trade facility. 

Relatively simple systems can be established in Aden (and eventually the other ports) to initiate automated and transparent customs systems, electronic payments and audited accounts to mitigate the risk of corruption, create import efficiencies, and lower the costs of transportation. Collectively, these steps would increase the volume of basic commodities imported into Yemen and drive down market prices.

Step Two: Stabilize the currency through monetary and fiscal reform

Since the outbreak of conflict, the Yemeni Riyal has lost more than half its value against the U.S. dollar. A weak currency exacerbates food insecurity and the ability of the public to afford basic commodities.

To prop up the Riyal the Central Bank of Yemen urgently needs an infusion of capital to shore up its depleted hard currency reserves from its primary financial backers in the Gulf. To encourage much needed external financial assistance, the Central Bank and the Ministry of Finance should accelerate reforms and improve governance. Transparent, credible budgets and accounting systems would be a confidence boost to the U.N. and donors. Additionally, donors must press the Houthis to stop their diversion of public funds and aid in areas under their control. Finally, Yemen’s fractured Central Bank, with competing offices in Aden and Sana’a, must begin working together to ensure a nationally cohesive and functioning financial sector for the benefit of the entire country.  

According to the United Nations “16 million people are going hungry including 5 million who are just one step away from famine.” External economic support for Yemen should not hinge on a peace deal between warring factions; delay risks irreversible and unfathomable conditions for Yemen’s most vulnerable.      

Yemen remains on the brink.

The Biden administration has made big policy decisions in its first month. Yet, America’s ability to affect the war and stabilize the region is, in fact, highly limited. For years, military pressure and economic sanctions have failed to yield peaceful political change. Perhaps economic opportunity is the key to affect the human condition in Yemen.

R. David Harden is managing director of the Georgetown Strategy Group and former assistant administrator at USAID’s Bureau for Democracy, Conflict and Humanitarian Assistance, where he oversaw U.S. assistance to all global crises. Follow him on Twitter at @Dave_Harden.

Abdulrahman Al-Eryani is an economic development specialist from Yemen. Follow him on Twitter @eryaniar