Will Yemen’s military gains help revive its oil exports?

The internationally recognised government in Yemen, led by the Presidential Leadership Council, has recently launched a major counter-offensive to reclaim territory from the Houthi militia, a move that could potentially aid the resumption of oil exports. The offensive has seen the government recapture strategic positions along the western coast, including areas around the Bab al-Mandab Strait and Mocha, as well as advances in Taiz. However, full control over Yemen remains elusive.

Yemen possesses substantial oil reserves, yet the country has struggled to extract and export them in significant volumes. The oil industry's collapse in the mid-2000s, following structural, political, and security challenges, has left Yemen dependent on crude exports for a significant portion of its foreign currency and government revenue. Prior to the suspension of exports in 2022, oil accounted for approximately 70% of Yemen's government revenue.

The Houthi militia has disrupted oil exports by targeting export terminals in government-held areas. In October and November 2022, the Houthis launched attacks on Rudum (Nashima) in Shabwa and Al-Dabba in Hadramawt, causing significant disruptions. The attacks forced oil companies to suspend or curtail exploration and production operations, leading to a drastic decline in production.

By 2024, production had dropped to just 19,000 barrels per day (bpd), a far cry from the 400,000 bpd the industry reached at its peak in 2002.

The suspension of oil exports has exacerbated Yemen's economic and humanitarian challenges, including rising prices, currency depreciation, growing poverty, and eroding purchasing power. The conflict has stalled Yemen's oil production, which once thrived and now remains significantly below pre-war levels. Resuming oil exports could provide much-needed economic relief to Yemen, potentially helping to revive its oil industry and bolster its exports.