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Houthis Cut Oil Subsidies Endangering Support

August 3, 2015

MIDEAST STREETS ™
A Yemeni man refuels a car at a petrol station in the Yemeni capital, Sanaa. (MOHAMMED HUWAIS/AFP/Getty Images)
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[Sana’a] Ten months after storming Yemen’s capital on a pledge to maintain oil subsidies, the Iranian-backed Shiite Houthis have angered the Yemeni people by going back on their promise and allowing the price of petroleum to float. Much of the group’s early local support came from those who saw the oil subsidy as their only way to make ends meet. But the cost of the continued fighting has led to the Houthis to reverse their policy and risk the loss of much of their support in the process.

“When the Houthis came to Sana’a rejecting the removal of fuel subsidies, we rejoiced that those who had suffered in Saada and used to live in caves are going to be more merciful towards us, the people. That’s why we have been so patient,” Ali Al-Salahi, a taxi driver in Sana’a, told The Media Line. But patience has been running thin due to the ongoing hardships the war has brought. “We believed that the best was yet to come and that all these problems would diminish,” Al-Salahi said.

Following the announcement by the Houthi’s Revolutionary Council that the price of oil will be allowed to float, Al-Salahi has lost his tolerance and his optimism. “We have realized that they are as much a gang of corrupt opportunists as their predecessors,” Al-Salahi said, adding, “the only difference is that the Houthis came with religious slogans.”

Other residents of Sana’a were more understanding of the constraints the Houthis have found themselves under. “The war has burdened the Houthi and political powers have conspired against them,” Ahmad Al-Mamari, a 41-year old teacher living in Sana’a, told The Media Line. Half of the problems now faced by Yemen were not around at the time of the previous government and so it is justified for the Houthi to remove the subsidy, Al-Mamari said.

Hamoud Al-Ghail, another driver living in Sana’a, did not accept this, pointing to the Shi’ite group as the cause of much of the economic problems facing the country. “The Houthi have stolen from the Central Bank of Yemen so much so that it is about to go bankrupt. This in turn has forced the Houthi to remove fuel subsidies, something they are willing to do because they do not care about the average citizen,” Al-Ghail charged. “Nobody complains or protests about this decision due to the tight control the group has brought over the city,” he argued, adding that, “Since the Houthis took control over Sana’a, it has become a dead city.”

The Houthi Revolutionary Committee which controls the majority of the country took the step to float oil prices in an effort to boost the economy. Although it will mean higher costs for buyers it is hoped that companies and businessmen will begin to import more oil products with the incentives of a reduction in taxes and import fees.

In addition, the committee has imposed a tax of half a US dollar on every 20 quarts of benzene or diesel sold which will be used to provide funding for the establishment of a power plant to offset Yemen’s ongoing shortage of electricity.
Since the outbreak of violence in the country in 2011, power shortages have been a frequent blight on Yemenis. In the capital, neighborhoods can receive anywhere between two hours of electricity a day to one hour every few days. As a result, many people have taken to running benzene generators in order to power phones, laptops and other basic equipment. This has resulted in the cost of benzene rising significantly, especially when it is bought from the ubiquitous black market.

One alternative to paying black market prices has been the introduction of a new service in grocery stores around the country where people can charge their phone for half a dollar. Other families have taken to using wood or cardboard to cook with, or simply stopped cooking altogether. But even with such remedies the cost of oil is still having a huge impact on people’s lives and so the removal of subsidies will hit Yemeni’s where it hurts.

“The decision to float the price of petroleum, removing the subsidization of these products, is an even worse decision than the one made by the (previous) government,” Mustafa Nasser, head of the Economic Media Center, said. Floating the cost of oil linked it to the price of unstable international markets which will have broader long term effects on the economy, he told The Media Line.

Exactly how the Houthis did their calculations to come to the policy they have announced is unclear, Nasser mused. But he believed it was likely that the Shi’ite group had made the decision as a response to additional oil that had arrived in Yemen through the port of Aden following the Houthis’ retreat from the city. Equally, the Houthis are likely hoping to push commerce away from the black market and reduce its size, as the illegal trade in petroleum has become embarrassing to them, Nasser said.

Prices for unsubsidized fuel imported by private companies will be set in advance by the Houthis and all money involved in the trade will be wired through the Yemeni Central Bank: two policies which the Houthis hope will ease the burden on citizens while simultaneously boosting the economy.

Due to the effect of the war, wildly varying prices and monopolies were beginning to form in different parts of the country, Bassem Salah, a Houthi leading figure, told The Media Line. Floating the price of oil was an attempt to redress this problem, he said, and was in the best interests of the people. Allowing an open and unregulated market, Salah explained, would allow competition to reduce prices and diminish this burden.

Both Saudi Arabia and the United Arab Emirates (UAE) boosted Yemeni oil markets by providing fuel aid into the port city of Aden recently. Shipments of food and other essentials have helped relieve economic burdens on Yemenis on the southern coast.

The Saudi government has played a role in stabilizing the Central Bank of Yemen, Ahmed Shammakh, an economics analyst, told The Media Line. The kingdom has placed “one billion US dollars in the Central Bank of Yemen, which is the only reason the local currency has not collapsed yet. At the same time it’s the only foreign reserve that Yemen still has,” Shammakh said.

Ultimately, political analyst Abdel Al-Uqaibi told The Media Line, Yemenis will think with their pockets. “The Houthis had very wide popular support when they started calling for the re-subsidization of fuel prices. Now that the Houthis no longer offer this to people, many will turn their backs on the group,” he predicted. “People only care about their best interest regardless of which political party would make that happen.”

 

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