Following intensified fighting on Yemeni fronts and a renewed cross-border campaign targeting Saudi strategic assets, the emboldened Houthi movement appears to be in a favourable position to maintain its current dominant position in northern Yemen, which undermines the prospect of ending the conflict this year.

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On 7 March, the Yemen-based Houthi movement claimed several explosive-laden drones and ballistic missile attacks targeting military sites in Jizan and Asir regions in southern Saudi Arabia and oil facilities in Ras Tanura and Dhahran in the kingdom’s Eastern Governorate. Saudi officials said the attacks did not damage the oil facilities. Before this incident, on 4 March, the Houthi movement claimed to launch a missile targeting Saudi Aramco oil facilities in Jeddah city. There was no confirmation from the Saudi authorities or the company. However, Saudi military forces have since responded with multiple daily airstrikes on the Yemeni capital Sana’a, claiming to have targeted multiple Houthi military sites.

The latest escalation comes against the backdrop of renewed diplomatic efforts by the United States and the United Nations to reach a ceasefire that would pave the way for a resumption of UN-sponsored political talks to end the six-year conflict in Yemen. While the prospect of a political solution seems closer now than over the last two years, a renewed outbreak of intense violence suggests that rival parties are consolidating their positions on the ground to use as leverage in upcoming negotiations, diminishing hopes of a swift and enduring end to the fighting in coming months.

PANGEA-RISK analyses the latest escalation of violence and assesses the prospect for peace in Yemen’s long-running conflict.

Escalating violence in Marib

The Yemeni conflict already showed signs of escalation in late 2020. While the UN-brokered Stockholm Agreement had borne some fruit in 2019, especially around Hodeidah, it seems to have had adverse effects in 2020. Houthi forces opened several new fronts, with the main objective to gain control of Marib City. On 7 February, the Houthis launched a large-scale military offensive in Marib, the last stronghold of the Saudi-backed government headed by Abdrabbuh Mansour Hadi. After months of relative peace, this battle could decisively change the outlook on the ground for the warring parties and shape the future of the country and its political alignment.

The capture of Marib is significant for the Iran-backed Houthis for two reasons. First, it is Yemen’s richest governorate in oil and gas and would secure a much-needed source of revenue for the group, giving it some measure of parity with President Hadi’s faction. Second, capturing Marib would represent a major Houthi victory over Saudi Arabia and its allies, and would cement the group’s position as the strongest faction within Yemen. This, in turn, would enable it to play the largest role within the future government.

Moreover, a Houthi victory in Marib would be a catastrophe for President Hadi and his government and might lead to the erosion of Hadi and his government’s role in the country’s peace negotiations. The city is President Hadi’s final stronghold in the north; with Marib taken, the Houthis’ control over northern Yemen would be significantly stronger. With the separatist Southern Transitional Council (STC) controlling a large portion of the south, including the temporary capital Aden, Hadi would effectively become a president without a country.

In such a case, Yemen would almost certainly end up divided between an Iran-aligned Houthi state in the north and a UAE-friendly STC government in the south, mirroring Yemen’s pre-1990 division. Saudi Arabia, which wishes to avoid this outcome, has intensified its support for Hadi’s forces in Marib, launching scores of airstrikes on advancing Houthi units.

Against the peace momentum

The Houthis’ persistent attacks on Saudi oil facilities and their offensive to control Marib risk jeopardising the window of opportunity towards diplomatically resolving the country’s civil war. The offensives coincided with the new US administration of Joe Biden adding pressure on Saudi Arabia to find a political solution to the conflict. The administration announced that the US would halt arms sales to the kingdom and end its ‘blank check’ support for its war in Yemen. The administration has also moved to revoke the designation of the Houthi Movement, as a foreign terrorist organisation (FTO), citing humanitarian reasons for reversing the sanctions (see SAUDI ARABIA: RECALIBRATED US RELATIONS WITH THE KINGDOM TO STRAIN INVESTMENTS).

Houthi attacks on Saudi oil assets

For Saudi Arabia, the Houthi attack on its strategic assets has a more direct propaganda value, allowing it to show off possession of sophisticated ballistic weaponry. Ongoing assaults simply deliver the broader message that the Saudi oil sector, which is the kingdom’s economic lifeblood and is of critical international economic importance, is not safe from the Houthis. The latest attacks caused a brief rise in oil prices, with crude reaching USD 70 for the first time since 2019, indicative of the wider international implications of both Yemen’s civil war and Iran’s worsening relations with the US and its regional allies engulfing the Saudi oil sector.

In September 2019, a sophisticated strike against key oil facilities in eastern Saudi Arabia, claimed by the Houthis and widely blamed on Iran, shut down about half of production. In the event of the success of the 4 March Jeddah operation, it would raise questions for the Saudi government about the level of security in place at such critical infrastructure sites as the port of the kingdom’s commercial capital (see SAUDI ARABIA: GROWING SECURITY RISKS TO MARITIME AND OIL ASSETS ARISING FROM YEMEN).

However, the Houthis banked on conquering Marib and attacking Saudi soft targets which they may have assessed would greatly enhance their leverage at talks once they restart. The push for Marib may have the opposite effect, ending the window for talks completely, and pushing the Biden administration back into Saudi Arabia’s camp. Not only could this continued Houthi aggression have negative implications in terms of how the Biden administration might react, but it could strengthen anti-Houthi resolve on the ground in Yemen.

Riyadh Agreement, Hadi’s lifeline

THE 2019 RIYADH AGREEMENT FEATURING HADI MANSOUR

At the same time, negotiations between the STC and the Hadi government to implement the Riyadh Agreement – signed in November 2019 under the guidance of Saudi Arabia in order to solve the division in southern Yemen – witnessed a breakthrough in December 2020. The Saudi-led coalition agreed to a new power-sharing cabinet led by Prime Minister Maeen Abdulmalik Saeed and became supported by the internationally recognised President Hadi and his Aden-based forces. The cabinet includes five ministers from Yemen’s biggest political blocs, including the STC.

The power-sharing arrangement between the Hadi government and the STC – notwithstanding its fragility – has brought short-term stability in the south, allowing pro-Hadi forces to reallocate their resources to the crucial northern front. The Riyadh Agreement will be vital for the Hadi government to help slow the territorial gains of Houthi-backed forces operating in the north of Yemen. If the Saudi-based coalition can prevent the Houthis from making further territorial gains in the months ahead, it increases the scope for negotiations towards a ceasefire emerging at some stage in 2021. The ultimate success or failure of the Riyadh Agreement on the one hand, and the indirect negotiations between Saudi Arabia and the Houthis on the other, will be critical for the future of the war in Yemen in 2021.

Outlook for peace in 2021

HOUTHI FIGHTERS IN YEMEN

It is highly unlikely that the Houthis and the Hadi government will reach any lasting peace deal or power-sharing agreement in 2021. The global Covid-19 pandemic and subsequent economic downturn mean that international policymakers, including the US, will not view the conflict in Yemen as a priority for much of this year, leaving the door open for flare-ups in the conflict and potential divisions re-emerging with the Saudi-backed coalition forces.

Additionally, even if the push for a political solution succeeds and the various Yemeni factions agree to begin a national dialogue, any formation of a new Yemeni government will face serious challenges related to divergent local interests and the conflicts alignment to the regional Saudi-Iranian rivalry. The Houthis’ ties to Iran will mean that any future state substantially controlled by the Houthis will likely pursue a pro-Iran, anti-Saudi foreign policy. Since this would be unacceptable to Saudi Arabia, the kingdom would be likely to veto any settlement that gives the Houthis control of Yemen’s government and does not address the security issue on its southern borders.

On the other hand, the Houthis will not agree to any agreement that does not give them a substantial stake in the government, making an agreement that satisfies all sides extremely difficult to achieve. One way or another, regardless of the outcome of the battle in Marib, the Yemen conflict is likely to be far from over.

The most likely scenario

HOUTHI FIGHTERS IN YEMEN

Given the above factors, the most likely scenario for 2021 will entail continued fighting at moderate intensity with periodic escalation. Some of the red flags in the future that could make this scenario the most probable include:

  • Riyadh agreement fails or weakens.
  • Increased cross-border attacks.
  • UAE sends reinforcements to STC.
  • Tension increases between Saudi Arabia and the UAE.
  • Hadi leadership weakens.
  • US pressure on Saudi Arabia without achieving Houthi guarantees for de-escalation.
  • Increased activity or interference from Islamic State (IS), Al Qaeda in the Arabian Peninsula (AQAP), militias, and others.

In the event that the Riyadh Agreement holds in the south, pro-Hadi troops may succeed in delaying the Houthi progress in capturing the oil-rich Marib Governorate However, given the Houthis’ military successes in 2020 and the expected lack of cohesion between joint Hadi-government and STC forces, the scenario of the Houthis eventually seizing Marib and cementing their control over the north is much more likely.

This imbalance of power will make it unlikely that Houthi forces will agree to a ceasefire or inclusive peace process in the short term. As long as one side in the conflict believes it can overpower the other militarily — as Houthi forces currently do — the conflict is unlikely to end.

Similarly, successes in negotiations between Saudi Arabia and the Houthis over border insecurity could lead to a significant decrease in the Saudi war effort. Saudi disengagement will also affect the trajectory of the civil war in Yemen. Nevertheless, as long as neither of the Yemeni sides to the war comes to an agreement between themselves, and in the absence of an enduring stalemate on the battlefield, violence will continue.

INSIGHT

Barring a political solution to the conflict, fighting is unlikely to abate in the near future, increasing the complex economic challenges the Yemeni government is expected to face, which may paralyse its ability to fulfil its duties. Mainly, the continuous deterioration of the local currency exchange rate in areas outside the control of the Houthis.

Since the outbreak of the conflict, Yemen has lost almost 50 percent of its GDP. Hydrocarbon production and exports were largely suspended, as well as investments. At the same time, low foreign reserves severely reduced Yemen’s import capacities, causing a shortage of food, medicine, and fuel. This has had serious repercussions for the living conditions of citizens, in addition to the difficulty of providing salaries for public sector employees in the light of the decline of revenues. Economic competition between parties to the conflict to control hard currency (mainly aid and remittances) is a key driver of price fluctuations, particularly in fuel markets, and could spark future price rises. Because Yemen is so highly dependent on imports, any depreciation in the value of the Yemeni Riyal is reflected almost directly in higher prices for consumers. Fuel shortages regularly spark protests and imports are subject to high levels of government intervention.

Additionally, the ongoing high rates of inflation are likely to exacerbate the dire situation for households, making many basic goods and services unaffordable for broad segments of the population. This will partially reflect the weakness in the Yemeni rial, amid strong demand for US dollars domestically. In December 2020, the parallel exchange rate for the Yemeni rial reached historic lows of Yemeni rials 920 to the US dollar, a weakening of over 80 percent year-to-date.

There is a limited chance of the currency reversing its depreciatory trend in 2021, amid still-elevated political and security threats. The Central Bank of Yemen (CBY) has limited ability to tackle depreciatory pressures on the unit. Yemen’s foreign currency reserves are expectedly mostly depleted, with a USD 2 billion deposit made by Saudi Arabia in 2018 allegedly used up. Rather than intervening in the market to support the currency, the CBY closed 30 private exchange firms for violating currency speculation rules in early December. However, this was insufficient to prevent the unit from weakening further in the remaining weeks of 2020. Barring any further deposits into the CBY by international actors such as Saudi Arabia, which is unlikely given the economic pinch felt by the kingdom, inflationary pressures look set to persist in the coming months.

SEE COUNTRY OUTLOOK: YEMENSAUDI ARABIAIRANUNITED ARAB EMIRATES