Yemen's oil income falls - will it affect the country?

2009 saw Yemen's oil income falling by over half compared to figures from 2008, one of the country's senior central bank officials has said.

Ibrahim Al Nahari, sub-governor for foreign banking operations, told Reuters that oil income had fallen to US$2 billion in 2009, from US$4.4 billion in 2008, a year-on-year plummet of 55.4 percent.

While oil revenue accounts for 75 percent of the Arab state's budget, Al Nahari was confident that increased income from gas would keep the country's economy on track. He added however, that he thought 2010 would see oil revenues recover.

Yemen is one of the poorest countries in the Middle East, with a GDP per capita of US$2500, compared to US$41,800 in the UAE and US$121,400 in Qatar.

Earlier this month, the World Bank was still forecasting that Yemen would grow by 3.1 percent this year and by 3.7 percent in 2011.

However, terrorism in the country was recently identified as the biggest risk to Gulf economies in 2010, according to a new report from the RiskMap business consultancy.

"Two significant events - the attempted assassination of Saudi Arabia's Prince Mohammed Bin Nayef and the Detroit airline bomb plot - show increased boldness and an innovative new techniques," said Control Risks analyst Marie Bos.

Investment

Despite the fall in 2009, the beginning of the week saw Alwi Shihab, a special envoy of the Indonesian President, met up with Yemeni Minister of Oil and Minerals Amir Ayddarus.

Both parties reviewed Indonesian outfit MedcoEnergi's activities in Blocks 82 and 83 of Hadramout, eastern Yemen and discussed further Indonesian investment in Yemen's oil and gas and mineral sectors.

Thirteen sedimentary basins said to be rich in both oil and gas have been identified in Yemen, but only two of these have seen any exploration and production activity, according to a Yemen Post report, Upstream Online reports.

The Yemeni sector of the Red Sea and the Arabian Sea is said to hold gas promise but the area remains relatively under explored.

At risk

There are fears that Yemen, which is an incredibly fragile state, risks becoming a failed state unless the international community helps develop its economy to give young people alternatives to a path ofIslamist radicalisation, its foreign minister said. "The actual fact is that the economic problem is the major cause of all the ills Yemen is facing now," Yemeni Foreign Minister Abubakr al-Qirbi said.

"I hope it [Yemen] will not become a failed state, there is a risk of course, but I think a component is how much the Yemenis will rise up to the challenges and really move away from political squabbling," Al-Qirbi said when asked whether the country has reached that level of danger.

Forty two percent of Yemen's 23 million population live on less than US$2 a day. Al-Qirbi said unemployment stood at 30 percent and 65 percent of the country's population was under 25.

"Yemen is a truly poor country. Yemen's only revenue is oil, oil constitutes about 70 percent of revenue. This is now dropping to 50 percent because of the reduction in oil production and oil prices. So Yemen is a country with very limited resources."

For such a poor country, a drop in income on oil in 2009 could have serious consequences.

According to the US Energy Information Administration (EIA), Yemen is the world's 36th biggest oil producer, with an output of 281,000 barrels per day (bpd) in 2009, compared with 300,000 bpd in 2008, and down from a peak of 457,000 in 2002. The Middle East as a whole produces about 26 million bpd. The EIA estimates Yemen holds three billion barrels (bbl) of proven oil reserves, an article on Reuters states.

Help

In 2006, a donor's meeting in London pledged US$5 billion for Yemen, but only US$415 million has been disbursed, partly because of concerns about how the money would be spent.

The United Arab Emirates announced a $650 million aid program for Yemen a month ago, to be spent on infrastructure, energy, water, transport and education. Saudi Arabia may be giving as much as $2 billion a year in direct, unofficial aid that includes money for the army.

The UK is giving GBP£25 million (US$40 million) in civilian aid to Yemen in the current fiscal year, and plans to give a total of GBP£100 million in the next three years.

Currently Yemen has declared war on al Qaeda under pressure from Washington and Saudi Arabia, its oil-producing neighbour and its main aid donor along with the US, Reuters reported.

The UK is also trying to rally support to help Yemen as the Aran country struggles against al-Qaeda - leading to more fear that the country won't be able to loose the grip that al-Qaeda has on it. It appears that Yemen is a long way off being secure.

 

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