What do the consequences of reducing the economic escalation in Yemen look like?

After months of escalating financial and economic conflict between the Yemeni government and the Houthi group, UN envoy Hans Grundberg announced on Tuesday that the two sides of the conflict had reached an agreement to stop the economic escalation between the two sides.

Grundberg's office said in a statement that the government and the Houthi group "agreed on several de-escalation measures regarding the banking sector and Yemeni Airlines."

The statement added, "The UN envoy received from both parties a text that includes canceling recent decisions and measures against banks on both sides, and ceasing any similar decisions or measures in the future."

The agreement included "the resumption of Yemenia Airlines flights between Sana'a and Jordan, increasing their number to three daily, and operating flights to Cairo and India daily or as needed."

It also stipulated that "meetings will be held to address the administrative, technical and financial challenges facing Yemeni Airlines, and begin holding meetings to discuss all economic and humanitarian issues based on the road map."

Commenting on the statement, the Yemeni government and the Houthi group welcomed the UN envoy’s announcement, in two separate statements by both sides.

Hours after the agreement, “the Governor of the Central Bank of Yemen, Ahmed Ghaleb Al-Maqbiqi, announced that he had submitted his resignation to the Presidential Leadership Council,” apparently indicating an implicit refusal to back down from the bank’s recent decisions.

However, the Presidential Leadership Council, which includes a president and 7 members, unanimously announced its rejection of the resignation of the Central Bank Governor, indicating that Al-Maqbaqi will remain in his position.

Agreement wallpapers

The agreement was made against the backdrop of the Central Bank’s announcement on July 10, suspending the licenses of 6 of the largest banks in Yemen, whose main centers are located in the capital, Sana’a, which is under the control of the Houthis.

On May 30, the Central Bank directed to stop dealing with these banks due to them not moving their headquarters from Sanaa and continuing their dealings with the Houthi group. The latter responded by banning dealing with 13 banks in areas of government influence.

Before that, the Houthi group announced for the first time in April the minting of a one hundred riyal coin (equivalent to approximately 20 cents).

The group explained at the time that “the offering of the new category of currency will not affect exchange rates, as the issuance is intended to replace damaged currencies, and there will be no addition to any monetary mass on offer.”

In response, the Central Bank of Yemen considered the Houthi issuance of a coin a “dangerous and illegal escalation that does not take into account in any way the interests of citizens.”

In addition to the banks' conflict, a financial dispute recently emerged between the government and the Houthis regarding the financial returns of Yemeni Airlines, amid accusations from both sides of exploiting the company's profits.

Consequences of de-escalation

After the agreement to reduce the economic escalation was announced, the issue turned to public opinion in Yemen, amid disagreement in assessing the consequences of that.

In this context, financial analyst Muhammad Khaled believes that “the Central Bank’s retreat from its decisions - in compliance with the de-escalation agreement - will lead to a weakening of its position in the banking sector and the exchange sector in favor of the Central Bank in Sana’a, which is affiliated with the Houthis.”

He added to the Anatolia correspondent: “After this decline, banks and exchange facilities will not respond to the Central Bank in Aden, and it will not be provided with data in the future, and therefore it will not be able to exercise the function of supervision over banks.”

The financial analyst expected that this "will lead to the Bank of Sana'a taking over the banking sector and taking full control of it, and the failure of the Central Bank of Yemen will allow the Houthis to take additional measures in this sector, as well as print paper currencies."

He continued: "This will lead to the Central Bank losing the confidence of international institutions, including the SWIFT service, as it had previously informed it of withdrawing the licenses of banks located in Sana'a, then asked to postpone the decision for two weeks and then cancel the decision."

Regarding the position of the Houthis after the announcement of the cessation of escalation, Khaled says: “The bank in Sana’a will not back down from any steps it took in the banking sector, including printing the 100 riyal note that caused the escalation.”

He pointed out that the agreement "limited the ability of the Central Bank in Aden to take any similar measures in the future."

Upcoming consultations

After the announcement of the de-escalation, it is expected that consultations will be held between the government and the Houthis, as the UN envoy’s statement issued on Tuesday stated that “meetings will be held to discuss all economic and humanitarian issues based on the road map.”

In response, Grundberg called for "the need for the two parties to cooperate in order to reach an economy that serves all Yemenis, supports the implementation of a nationwide ceasefire and the resumption of an inclusive political process."

Regarding the expected consultations, economic researcher Muhammad Al-Jamai believes that “it is likely that an understanding will be reached between the government and the Houthis on a number of controls in the economic and humanitarian field, in accordance with what was called the road map.”

Al-Jama'i added to the Anatolia correspondent, "By acquiescing to this agreement, the legitimate government's most important weapons in the economic field were overthrown, without talk of any compensation for its approval of this sudden agreement."

He added: "The government appears to have broken a siege imposed on it about three years ago, in which it was deprived of its oil and gas resources. It has also proven the independence of its decision as evidenced by all external parties calling in to cancel or postpone the decisions of the Central Bank."

He pointed out that "one of the most important papers expected to be discussed in the upcoming consultations is unifying the currency and breaking the difference in currency rates in the governorates under the authority of the government and the areas under the control of the Houthis."

Oil exports stopped in October 2022, as a result of attacks launched by the Houthis on oil ports in areas under government control.

The Houthis insist on refusing to allow the resumption of oil exports, and require agreement on a mechanism in which the salaries of all public employees in all regions of Yemen are paid from oil revenues.

Yemen is suffering from a major financial crisis, the impact of which was increased by the cessation of oil exports a year and a half ago, as a result of the repercussions of the conflict between the government and the Houthis, which began after the latter took control of the capital, Sanaa, and several governorates at the end of 2014.

The conflict has intensified since March 2015, after an Arab military coalition led by Saudi Arabia intervened to support government forces against the Iran-backed Houthi group.

• Anatolia