A chaotic combination of political unrest, increased worker militancy and sabotage is doing severe damage to Yemen’s oil exports, which are down around 70 percent since unrest began, according to the Centre for Global Energy Studies.
The country’s economy is heavily dependent on hydrocarbons, which account for 25 percent of GDP, over 70 percent of government revenues, and over 90 percent of foreign exchange earnings.
According to Saturday’s Washington Post, after several abortive attempts to negotiate his departure Yemeni President, Ali Abdullah Saleh, has agreed to stand down within 30 days, under a deal negotiated by GCC envoys that will guarantee him immunity from prosecution. (update: on Sunday the Associated Press, via the Wall Street Journal reports Saleh is now equivocal about standing down, and requires a public ceremony as part of the deal)
It is not yet clear whether Saleh’s departure will satisfy the various groups of protestors, some of whom have been implicated in sabotage and instigating strikes by oil workers, and who are reported as saying the official opposition groups that signed the deal do not speak for them.
Outside the capital Sana’a the main cities, the government only has a limited grasp on government and security. The nation’s crude pipeline from Wadi Ubayda in the Ma’rib region remains ruptured after an attack in March, preventing the transport of oil for export from the Ras Isa terminal on the Red Sea.
Repairs are progressing slowly dues to tribal unrest and fighting in the area. Until it is fixed, exports of Ma’rib Light Crude are completely halted, bringing the 130,000 barrels per day Aden refinery to a halt.
Industrial action by oil workers at the Nexen facilities has been resolved have now been resolved, but the main problem is that thousands of expatriate oil workers who fled the country as unrest started are not returning.
Yemeni Oil Minister Amir al-Aidarous told state news agency Saba last week that “several oil companies have quit the country” and “if the problem persists, the government will be unable to meet the minimum needs of its citizens. The situation will pose a catastrophe beyond imagination”.
There are frequent blackouts across the country – as Yemen relies heavily on oil for power generation – and the government estimates that national income has shrunk by around 17% of GDP since protests began disrupting the oil sector.
The government continues to export Masila Crude, it’s secondary grade of oil, as this crude cannot be refined at Adem, and out of fear that if the government defaults on its export commitments, a severe fiscal problem may descend into a crisis, further weakening the government.
Between the absence of Ma’rib revenue and Masila oil, Yemen now faces severe fuel shortages. The Saleh government’s solution has been to enter into negotiations with Saudi Arabia for the purchase of 2 million barrels of feedstock crude for delivery to Aden. Saudi may provide the crude for market value in the interest of regional stability, but the status of the deal is now in doubt with Saleh’s announced departure.
While Saleh’s departure may allow the beginnings of a political resolution to the crisis in Yemen, the current state of the government’s finances, caused by being stuck between the rock of export commitments and the hard place of increasing domestic demand, will remain unresolved. The stopgap solution of importing from Saudi is likely to prove politically noxious.
Samuel Ciszuk, Senior Middle East Energy Analyst at HIS Global Insight, says “IOCS are largely continuing to keep foreign exports out of the country, which means that production restarts and the ongoing fight against mature decline will be slower and less efficient.”
“Given the threat levels, investment programs are on hold, meaning that Yemen’s output is likely to continue falling even faster, further hurting it’s economy, in what now looks like an unstoppable negative downward spiral, breeding further unrest and instability”.
