Had the thwarted al-Qaeda in the Arabian Peninsula (AQAP) attack on Yemen’s oil industry succeeded, its impact would have been immense. This country of 25 million people now suffers greater dependency on oil exports than its neighbour Saudi Arabia, although it produces 50 times less. A generation ago, when Yemen didn’t know it had oil, the country’s biggest source of foreign exchange was Yemenis themselves, the two million worked across the Gulf and sent remittances home.
That broad source of income played into politics then, underpinning Yemen’s democratic experiment in the early 1990s, just as the rise of the petro-economy did later in entrenching Ali Abdullah Saleh’s authoritarianism, which led to the current political crisis. There’s hardly any oil left, but judging by current efforts to diversify, nobody will find any other way to develop the Yemeni economy until the last drop has gone.
Yemen would have done better if it had never discovered oil, or had left it in the ground.
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It might have seemed different in the 1980s, when the American Hunt Oil came prospecting. Yemen has always been a poor nation in the Gulf, the only country in the Arabian Peninsula not to have found ample reserves of black gold. An influx of cash then seemed to promise Yemen the same fate, to a greater or lesser degree, as the rest of the region – gleaming urban landscapes and universal services, at least for the citizens. Yemenis might have gone from being guest workers to having guest workers of their own.
In fact, they were caught in the worst of all worlds. There wasn’t enough oil to generate that kind of economic development. But there was just enough to generate a few billion dollars a year for the political elite to mismanage, pay for an expansive security state, and create an economy now firmly based on rent seeking.
The politics of Yemen changed. From the 1960s the two Yemens had seen ideological struggles, which engaged the rest of the Arab world, between the Imamate of North Yemen, the Marxists of South Yemen, and then the ascendancy of Saleh’s General People’s Congress, followed by the reunification of the country.
But even if the structures surrounding Saleh’s rule were authoritarian, he started out as a flexible leader, adapting to ever-shifting forces in tribal alliances and the politics of the region. He had to be. He didn’t have enough patronage to be able to impose his rule in the early years, he had to co-opt and cajole and negotiate.
It is no coincidence, by the way, that the other rulers in the Arab world, known for their “moderation”, such as Hussein and Abdullah in Jordan and Hassan and Mohammed in Morocco, faced the same political economy. They may or may not have been “liberal” by personal conviction but the obsession in Western media coverage of these countries on whether King Hussein liked fast cars or King Mohammed speaks fluent English totally misses the point.
Their “moderation” or “liberalism” simply reflected the hands they had been dealt as rulers. They were not in a position to be self-sustaining regimes. They needed friends, both in the region and within their own societies, and the large expatriate classes represented a kind of proto-middle class, ideal from a political point of view because it was largely politically in absentia.
And so it was with Saleh and Yemen. Reunited Yemen held free elections in 1993 that were ground-breaking in the Arab world, and although the country faced huge problems, it escaped the worst forms of tyranny at a time when much more of the world was ruled by dictatorship than today.
Oil transforms politics
Then oil rose up. Scaled production began in the early 1990s at about 200,000 barrels a day. It peaked at 450,000 barrels a day in 2001 and has been declining ever since. But current production levels are enough to account now for over 70 percent of government income, and over 90 percent of the country’s exports. On paper, the discovery of oil took the Yemeni economy to a different league.
GDP per capita was about $300 in 1995 and has now risen to nearly $1,500. But progress in things which matter to ordinary people has been far spottier. Poverty has increased in both relative and absolute terms in the last 20 years, as has GINI, the measure of economic inequality. Unemployment has nearly doubled, even just as a percentage, and that’s if you were to believe official figures, which nobody does. Malnutrition is widespread.
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Of course, Yemen had a political and social elite before oil. But it scaled up and became intricately connected to the new source of wealth. One insider told me on a visit recently that the international oil companies present were widely suspected to be making direct payments to Yemen’s nebulous armed forces and security establishments “for their protection” – a story we have seen play out with Shell in the Niger Delta.
Gas deals which seemed to value the country’s resources at rock bottom prices were not formally investigated, and an activist who openly questioned them fled for his life to Singapore.
Oil yielded enough money to fight over, but not enough to bring any benefit to the population once the elite had taken its share. The decline in production has been predicted for so long that grand plans to diversify the economy, involving an endless round of initiatives and loans and aid talk, have been going for nearly a decade now. With no real results.
On the political front, the rising pressure to democratise was to some extent encouraged by falling oil revenues, although for a time the effects of declining production were kept in check by the rise in the world price of crude from $20 per barrel in 2003 to a new normal of around $100 per barrel by 2010 . By the time protesters went onto the streets in 2011, some of Saleh’s most important allies were also willing to abandon him because he wasn’t bringing home the goods.
Most experts now give the oil industry five to ten years at best. But lack of progress in diversifying the economy will continue as long as the oil is pumping. Political and business elites will remain focused on extracting the last drop of rent.
Nothing could ever have justified the human cost of an al-Qaeda attack, or the economic consequences of such violent disruption. But it is a tragic irony that, had it succeeded, an attack could have sped up the end of two decades of arrested development in Yemen, brought on by an industry which has never been worth the fuss.
The economy of a country of 25 million people now depends on an oil industry which produces a litre and a half of crude per person per day. It’s time for the country to run on something else.
Johnny West is founder of OpenOil, a Berlin-based consultancy in oil and other extractive industries. He has covered global energy markets since the early 1990s. In 2011, he published the first book-length account of the Arab Spring, Karama! Journeys through the Arab Spring.