Yemen’s Houthi Rebels FaceFinancial Crisis

Group is squeezed by conflict with Saudi-led coalition, inability to sell oil

Blocked from selling Yemen’s oil, the Houthi-led government has slipped into a financial crisis after four months of conflict with a Saudi-led military coalition.

The Houthis wrested control of government in the capital San’a in February and sent Western-backed President Abed Rabbo Mansour Hadi into exile the following month. They have since held the levers of power, having taken over government ministries and the central bank.

Oil exports used to supply a large share of Yemeni government revenues. But a Houthi official says the country hasn’t exported any since March because of damage to energy infrastructure and a blockade imposed by the Saudi coalition. International aid, which was another major funding source for the Arab world’s poorest country, has also dried up amid the deteriorating security situation.

The rebels currently control most of Yemen’s major cities, though they have suffered setbacks in the south in recent weeks. Backed by airstrikes, forces allied with the Saudi-led coalition have taken over the southern port city of Aden. On Tuesday, those forces were fighting nearby for full control of Yemen’s biggest air base, Al Anad.

Despite their military successes, the Houthis are finding it increasingly difficult to stay afloat, which raises the question of whether financial troubles could push them toward an elusive political settlement.

Tax collection has also fallen dramatically among the population of around 27 million, who are suffering from immediate shortages of fuel, food and medicine, according to a senior Houthi official.

Hospitals are running over capacity in areas hard-hit by violence, while fighting has made it difficult for aid groups to reach millions of people in need of food, according to the United Nations’ World Food Program. Diseases including dengue fever have spread in the battle-scarred south.

“There is no income at all,” said Abdullah Shaban, a member of the Houthis’ revolutionary committee—a governing body formed in March. As a result, the Houthis face a significant budget shortfall.

The Houthis have appealed for outside help. In March, the rebels sent delegations to Iran, Saudi Arabia’s regional rival, seeking fuel assistance and to Russia seeking larger-scale investment in energy projects. There have been no indications that any deals were reached.

Houthi officials have said they received some assistance from Iran in the past, mainly in the form of cash and intelligence. Iran is critical of the Saudi-led airstrikes, but denies it provides the Houthis with weapons. An Iranian U.N. official couldn't immediately be reached for comment.

Mr. Shaban, the Houthi official, said if Iran was planning to support the Houthis, it would have done so during the continuing crisis, but it had not.

The Houthis also extended separate appeals to some countries including Russia to help fill their foreign-exchange coffers, according to Hasan al-Sa’adi, another Houthi political leader. A Russian foreign ministry official couldn’t immediately be reached for comment.

ENLARGE

“There are some within the Houthi movement who are beginning to understand the consequences of continuing on the current trajectory,” said a senior Western diplomat who is tracking the situation. Efforts to broker a compromise, including a round of U.N.-sponsored talks in Geneva in June, have failed so far.

The Saudi-led campaign aims to restore Mr. Hadi to power. Supported by the U.S., the coalition began airstrikes in late March and imposed a sea blockade, leaving the Houthis economically isolated and cash-strapped.

Abdulmalik al-Houthi, the movement’s top official said Sunday that political solutions were still possible, even as he vowed to reverse the gains of Saudi-allied forces in Aden. The Houthi losses were short-term and would be countered “despite all Saudi Arabia’s money,” he said in an address broadcast by the Houthi-run Al Masirah TV network.

The Houthis are taking steps to fix their flagging finances.

Houthi officials say Yemen’s foreign-currency reserves—an important measure of a country’s ability to withstand financial shocks—have seen only a slight decline since the beginning of the year and stand at about $4 billion. But that decrease is largely the result of the country not being able to spend reserves on imports with the blockades and the fuel shortage that makes the cost of deliveries prohibitive. Local banks are barred from giving out foreign currency.

The central bank has been selling short-term debt since airstrikes began to replace maturing debt and avoid a funding shortfall.

Last week, the rebels’ leader, Mohammed al-Houthi, said a new tax of four Yemeni rials (about two cents) per liter would be placed on sales of petroleum products. The bank received offers for about $237 million of debt over the weekend, the Houthi-run Saba news agency reported.

Mr. Sa’adi insisted the Houthis could hold out for months longer despite the financial difficulties. The central bank, finance ministry and other government departments had saved money by stamping out corruption and adopting austerity measures, he claimed.

Government spending is banned on all operations except hospitals, water and other essential utilities, he added.

“Yemenis won’t run out of solutions,” he said. “We won’t die of hunger and will never let others control our destiny.”