How do attacks on oil terminals translate into weaker public finances?

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Attacks on oil terminals diminish government revenue and foreign exchange reserves

The internationally recognised government in Yemen is experiencing weakened public finances due to attacks on oil terminals, which have hampered oil exports. These disruptions directly impact government revenue streams and foreign exchange reserves, exacerbating existing economic challenges.
Reduced export revenue

The Houthi movement's attacks on oil terminals have directly impeded Yemen's ability to export oil. As oil exports represent a crucial source of revenue for the government based in the south, any disruption to this activity leads to a significant shortfall in state income. This reduction in revenue can strain the government's capacity to fund essential public services and operations.
Impact on foreign exchange reserves

Beyond direct revenue loss, the hampered oil exports also affect the country's foreign exchange reserves. Oil sales are a primary means by which a nation earns foreign currency, such as US dollars. A decline in these sales means less foreign currency enters the country, potentially leading to shortages. This scarcity can drive down the value of the local currency, the rial, as seen with the black market rate in Aden trading at 1,225 to the US dollar. A weaker currency makes imports more expensive, contributing to higher prices for fuel and commodities.
Government response to economic strain

In response to these economic pressures, including dollar shortages, the Aden-based government has implemented measures such as increasing the US dollar exchange rate used for customs duties on non-essential goods. This adjustment, by 50 per cent, was intended to address the scarcity of dollars but has also contributed to record-high prices for imported items. Furthermore, the government has resorted to printing money to finance its deficit, a practice that can further devalue the currency, particularly in areas where new currency notes are banned.

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How do attacks on oil terminals translate into weaker public finances?

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