U.S. Seeks to Up Pressure on Houthis in Threat to Yemen-War Truce

(Bloomberg) —

The US and its allies are raising the stakes in their struggle to curb ship attacks by Houthi militants in the Red Sea by increasingly blocking their revenue sources, a move that could jeopardize a peace deal intended to end an almost decade-long war in Yemen.

Washington has told parties including Saudi Arabia that key elements of a United Nations-led plan committed to in December can’t go ahead unless the Iran-backed group ends its near seven-month hostile maritime campaign, said several people who met recently with US officials. That would have included the disbursal of at least $1.5 billion in civil-servant salaries by Riyadh to Houthi-controlled territories, according to a person involved in negotiating the deal.

A US State Department official, who asked not to be identified due to the sensitivity of the matter, said President Joe Biden’s administration supports peace in Yemen to address longstanding economic and humanitarian crises in the country. But he emphasized that agreements tied to the so-called UN road map can only proceed if the Houthis stop the Red Sea attacks, which began in November ostensibly to put pressure on Israel to end its war in Gaza. 

The move demonstrates how US and UK airstrikes against the Houthis since early January have done little to deter the group, whose missile attacks and hijackings have upended shipping through one of the main arteries for global trade. Yet the shelving of the peace deal could undo a fragile two-year truce and reignite land fighting among Yemen’s warring factions, potentially drawing in Saudi Arabia and other Gulf states like the United Arab Emirates.

The resurgence of another Middle East conflict alongside the Israel-Hamas war would further highlight the Biden administration’s struggles to bring calm to the region — just months before November’s presidential election. Washington has been striving to broker a cease-fire deal in Gaza for several months with limited success.

Houthi Banks

In tandem with the US decision on the UN peace plan, the Central Bank of Yemen, which is part of the internationally-recognized and Saudi-backed Yemeni government based in Aden, has taken a series of measures against banks located in Houthi-controlled areas in Yemen’s north, including the capital Sanaa, that would undermine Houthi authority and cut their access to foreign currency. 

When the Houthis overthrew the government in 2014 and captured Sanaa, they seized all institutions including the then-national central bank, setting their own exchange rate for the Yemeni riyal and rules for all financial transactions connected to trade, humanitarian aid and remittances. In March they minted currency.  

Ahmed Ghalib, the central bank governor, suspended operations of six banks in Sanaa last week for noncompliance with an order for all financial institutions to relocate their headquarters to Aden, while issuing a new directive instructing Yemenis to exchange old bank notes circulating in Houthi-controlled areas for new ones.

That was to protect Yemen’s financial system, he said, especially after the Houthis were re-designated a global terrorist group in January. It’s effectively an attempt to end the dual banking and currency system that has emerged in Yemen since the Houthis took power.

The central bank move is being supported by the US and Western allies and has most likely received tacit approval from the Saudis, who bankroll the Aden government and central bank there, said four people with direct knowledge of the situation. The US State Department official declined to comment on that aspect of the plan, while officials with Saudi Arabia’s ministries of defense and foreign affairs who are responsible for the Yemen dossier did not respond to messages requesting comment.

Economic War

The Houthis accused the US and Saudi Arabia of orchestrating and waging a new economic war against them in response to their stance in the Gaza conflict. Prominent members of the movement have threatened to launch missile attacks on Saudi Arabian airbases as well as key projects associated with Crown Prince Mohammed bin Salman’s plan to diversify the economy.

“It’s a dangerous game of pouring fuel on fire,” Abdul Malik Al-Houthi who heads the Houthis’ Ansarullah Movement, said last week.   

MBS, as the Saudi de facto ruler is known, has long been striving to end the Yemen war, green-lighting direct negotiations with the Houthis after he failed to oust them from power during a seven-year military intervention that killed 377,000 people, provoked widespread humanitarian suffering and exposed Saudi Arabia to hundreds of missile and drone attacks including against its vital oil facilities.

In an effort to diffuse the current standoff, the office of the UN Special Envoy for Yemen has invited top leaders from the Houthis and the Aden-based government to meet to discuss possible solutions over the currency and banks but they have yet to respond, said a person informed about this move, who did not wish to be named due to the delicate nature of the ongoing efforts. 

The envoy, Hans Grundberg, declined to comment on the invitation but said the UN is determined to implement the peace road map.

Turning Point

If carried out fully, the Yemeni government’s moves will drain liquidity in Houthi areas and impact all financial dealings there, said Maged Al-Madhaji, chairperson and co-founder of the Sanaa Center for Strategic Studies. 

“We’re at one of the major turning points in the Yemen war because if the current truce unravels it will be very hard to reinstate it,” he said. 

Anti-Houthi factions, who say they have been excluded from Saudi Arabia’s deal with the Houthis and were compelled to rubber-stamp it in December, now want to leverage the international pressure on the group to extract their own concessions, namely by ending a Houthi embargo on oil exports from the south, Al-Madhaji said.   

Amr Al-Bidh, a senior official with the Southern Transitional Council, one of the main factions in the Aden-based government, said it will take more than financial pressure to tackle the long-term threats posed by the Houthis, who have been armed, funded and trained by Iran for years.

Fathi Al-Fahem, a Yemeni trader and businessman operating mainly in Sanaa, said the banking measures if implemented would impact his ability to import basic staples such as wheat from Australia. That would compound the hardship suffered by Yemenis in what is already one of the poorest countries in the world. 

“As it is, the situation is dire,” he said. 

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