American Institute: The economic agreement in Yemen under UN sponsorship reduces pressure on the Houthis

An American institute said, "The agreement reached by the United Nations to lift economic restrictions on the Central Bank of Yemen may unintentionally encourage the Houthis and enhance their ability to demonstrate military power."

On July 22, the United Nations facilitated an agreement between the Yemeni government and the Houthis on a series of economic measures supervised by the Central Bank of Yemen. This agreement ignited a major controversy within Yemen, and the Central Bank of Yemen imposed restrictions on areas under the control of the Houthis.

According to an analysis by the Arab Gulf States Institute in Washington ( AGSIW ) - translated by “Yemen Shabab Net” - “These measures, which were strongly opposed by the Houthis, were widely supported by many Yemenis who considered them necessary to alleviate the severity of the economic instability caused by the Houthis.” However, the new UN agreement, which lifts these restrictions, has generated a feeling of betrayal among these supporters, who view the agreement as a concession to the Houthis.

In a long and bloody military conflict in which each side used economic influence to enhance military pressure on the other side, and from recent developments it appears that the Houthis’ military power and regional influence have practically enabled the group to undermine this economic pressure by its competitors who control the Central Bank of Yemen.

Government failure and Houthi dominance
Just one day after the announcement of the UN-sponsored agreement, Ahmed Ghaleb Al-Maqibi, Governor of the Central Bank of Yemen, submitted his resignation to the Presidential Leadership Council in protest against the agreement. But the Presidential Leadership Council immediately rejected his resignation, perhaps indicating that the central bank is not to blame for the failed pressure campaign and that effective leadership of the bank will remain necessary.

According to the United Nations, the agreement aims to stabilize Yemen's economy, ensure the payment of public sector salaries, and facilitate humanitarian aid. However, given the ongoing threat posed by the Houthis, there are widespread concerns that the Houthis have manipulated these issues to escape the economic pressures they have been under, and may jeopardize salary payments and aid deliveries again when they prefer.

At the same time, the agreement inadvertently legitimizes the Houthis, implicitly underscores their dominance in the north and regional influence, rewards their control of northern territories and perhaps strengthens their authority.

The Central Bank of Yemen in Aden sought to regain control of Yemen's financial system, exploiting international sanctions and access to the SWIFT banking network to pressure the Houthis to make concessions, especially with the aim of resuming oil and gas exports, which were once the lifeblood of the Yemeni economy. This struggle for economic control dates back to early in the conflict.

The Central Bank of Yemen’s attempt to force Sanaa-based banks to relocate elsewhere was a calculated maneuver to restrict the Houthis’ ability to access the banking system; Ultimately, efforts to enlist such banking activity in the broader pressure campaign against the Houthis failed.

Long before the central bank's July 7 order, the Houthis were effectively outpacing these financial efforts to exert pressure; The group has maintained significant control over financial operations in its territory and introduced the new 100 Yemeni riyal note in April. They also continued to take steps to try to undermine the impact of sanctions and devalue the Yemeni currency.

Strengthening the power of the Houthis
By imposing control over the currency and worsening the country's economic crisis, the Houthis aim to force the government and its allies to negotiate terms previously considered unreasonable. A key element of this strategy is their refusal to pay civil servant salaries since 2014, putting pressure instead on the government and Saudi Arabia to cover these costs, which include salaries for Houthi fighters and officials.

The UN-facilitated agreement, which included the cancellation of financial sanctions imposed by the Central Bank of Yemen and a commitment to avoid similar measures in the future, eased economic pressure on the Houthis.

This easing of economic pressures allows them to reallocate resources toward their military operations and support their large army, which has swelled with new recruits since the start of the Gaza war. This enabled them to extract more resources through taxes and remittance fees to arm their forces. In this context, the UN agreement strengthened their ability to demonstrate military power, both at the local and regional levels.

Houthi economic strategy and geopolitical pressure

The Houthis have strategically focused on enhancing their economic power, imposing dual tariffs and increased customs duties whose revenues they control, while directing money and resources to their military industry. This has left the communities under their control dependent on external support.

The Houthis' inability to pay civil servant salaries, coupled with efforts to shift this financial burden to the Yemeni government recognized by the United Nations and Saudi Arabia, have exacerbated the country's economic turmoil. The oil embargo imposed by the Houthis through attacks on southern ports to stop oil exports has also increased pressure on Yemen's economy, affecting communities in both the north and south.

With these actions of blockading hydrocarbon exports and seizing customs revenues after easing restrictions imposed on the port of Hodeidah, the Houthis pushed the Yemeni government to the brink of bankruptcy. The government, which has become completely dependent on Saudi grants, is facing difficulty in confronting these tactics.

Strategic calculations of Saudi Arabia

Feeling ignored by its former ally, the United States, and facing the fickle winds of global politics, Saudi Arabia found itself isolated and forced to act in accordance with its own interests. Faced with the imminent threat of Houthi military actions and the lack of strong and immediate international support, Riyadh has taken decisive action to mitigate risks and promote stability.

Leaks from anonymous sources indicate that the Saudis exerted diplomatic pressure and imposed economic influence on Yemen’s Presidential Leadership Council to comply with the UN agreement and reverse the actions of the Central Bank of Yemen.

In this context, the Saudi decision to exert such pressure can be understood as a deliberate step to maintain regional stability and protect its interests. This maneuver underscores the complex balance of power and influence in the region, and highlights the challenges Saudi Arabia faces in dealing with a turbulent geopolitical landscape without allies or guarantees of external support.

Implications for regional stability

While Saudi pressure on the UN-recognized Yemeni government illustrates the facts behind the UN-brokered central bank agreement, there are broader consequences to the agreement. By failing to maintain existing pressures or impose new conditions that are sufficiently stringent to address Houthi military aggressions and their subversive role in the region, the UN agreement risks undermining long-term peace and security.

At the same time, there is persistent speculation that the international community is rushing to push Yemen towards a political settlement to end the conflict, which is highly problematic given the Houthis’ military capacity and regional influence that could hinder such negotiations in their favor.

Ideally, any negotiations should force the Houthis to curb their armed activities and commit to real and verifiable peacebuilding measures. Without such conditions, any victory agreement may prove costly, providing short-term tranquility constrained by the potential for longer-term instability.

The calculated and problematic Saudi response highlights the kingdom's struggle to ensure national security in a broader regional environment where traditional alliances are unraveling, with the power and influence of the largely unified, Iranian-backed Houthis rising and Riyadh's allies in the south being torn apart by divisions.

Riyadh's coercive measures towards the Yemeni government were not only aimed at reversing fiscal policies, but were also aimed at countering a deeper existential threat: the Houthis' ominous warnings that they would target Saudi Arabia if this economic pressure was not eased.

Regional calculations and no protection for Yemenis

The international community - if we look to the future - will have to think about a more robust and coordinated strategy to protect the Yemeni people from policies that may harm them in the long term. This is likely to be justified if tougher sanctions are imposed on the Houthis, ensuring compliance with peace agreements, providing consistent support to the UN-recognized Yemeni government, and taking into account the needs and well-being of the Yemeni people.

But it is unfortunate that the international community's attention is no longer closely focused on Yemen, and realpolitik calculations have come to shape the decision-making process of regional and international actors, calculations based on the military and political realities that are now clear on the ground and among the warring parties in Yemen.

The failure of the international community to redouble efforts to punish the Houthis and support the UN-recognized Yemeni government – a failure that seems more predictable with each passing week – will likely result in the Houthis continuing to expand their influence and control.

This reality indicates further destabilization in Yemen and the region, and only through concerted efforts by the international community can the cycle of conflict be broken and sustainable peace achieved. Despite the urgency, the prospects for the success of such an effort do not appear promising.