The coronavirus pandemic has dealt an immense blow to businesses and nations all around the planet, yet there is one specific sphere where it might actually deliver some positive outcomes – namely, ending long-standing and costly wars. The Yemeni civil war, one of the most sanguinary conflicts of the 21st century that has rekindled internecine distrust and elevated regional tensions to a new peak, might be the most realistic case in point as countries of the Gulf prepare for a virtual donors’ conference next week, organized for the alleged purpose of helping Yemen overcome COVID-19. As the country remains split between the Houthi north and the Saudi-backed south, there is no easy military victory to achieve for Saudi Arabia and its allies and hence, the money spent on Yemen might be rerouted for domestic purposes, such as alleviating the discontentment of the populace. Yemen’s oil-producing story has plenty of similarities to that of Syria – before the oil crash of 2009 it used to produce some 300-350kbpd, however first due to external market conditions and then due to the immediate effects of armed conflict Yemeni crude output has plummeted quite spectacularly. The low point was reached at the height of fighting in 2016, then Yemeni production hovered around 40kbpd. As of late 2019 Yemen has managed to produce some 60kbpd of crude and, with domestic refining virtually non-existent, even managed to export some of it to predominantly Chinese customers. The past years have seen Yemeni deliveries to India, Japan, Italy or Malaysia, however all of 2020 cargoes have been to China.
As opposed to Syria whose oil sector is still heavily debilitated by international sanctions, Yemen could move towards a restart of oil production relatively soon – the only thing it needs is a cessation of hostilities. In early April 2020 Saudi Arabia has announced a unilateral ceasefire, the official reasoning for this bold move was revolving around the start of Ramadan, however the reason why Riyadh would want to end the conflict is much more trivial – in times of missing government revenues (2020 budget is breakeven at an oil price of $85 per barrel) the Saudi kingdom needs to go into saving mode if it wants to survive the pandemic without domestic upheaval. In addition to domestic pressures, the dissociation of the United Arab Emirates and Sudan from fighting in Yemen puts Riyadh even more at the forefront of a potential diplomatic settlement with the Houthis.
Saudi Arabia’s unilateral withdrawal presents a double whammy for Yemen – under conditions of a dual government it needs to confront COVID-19 (it has one of the worst corona virus death rates globally, 77 deaths per 310 cases as of June 01) all the while its healthcare-related infrastructure was pounded for 5 years by Saudi-led air strikes, as a result of which only half of the country’s pre-civil war hospitals are operating. Hence, the current situation remains largely hazy for international oil companies – the lack of clarity on Saudi Arabia’s plans with Yemen, the continuous partition into two parts and low oil prices render any IOC return quote unrealistic. Hence, most probably the only company to continue drilling new acreage in Yemen in the near future will be the state-owned PetroMasila and Safer.
It must be pointed out that Yemen already hosts two foreign companies, although one of them seems to be intent on leaving the country. The Indonesian independent oil firm PT Medco controls the Block 82 concession (Wadi Amed) but has already filed last year for its relinquishment – which still failed to take place as the relevant government approval is missing. This leaves the Austrian OMV in the privileged position of being the only NOC that is currently producing in Yemen – on its Block S-2 it resumed oil production in April 2018 and has been pumping some 4kbpd of crude from the Habban oil field. Generally speaking, very little of Yemen’s hydrocarbon bounty is located in Houthi-controlled territory. Nevertheless, the Yemeni authorities are experiencing intense difficulty in bringing crude, most of which is in the Marib Basin in the central part of the country, to seaside ports from where they can be shipped elsewhere.
First of all, before the Civil war Yemeni crude was sent to the Ras Isa port on the Red Sea coast – the pipeline connecting the Masila and Marib Basins to Ras Isa was blown up in 2015 and remains non-serviceable to the present day. Second, in order to use the Bir Ali port on the Indian Ocean coast companies have to truck their production to the collection point in the Marib Basin – this in itself is a great achievement as before 2020 they had to truck the crude for 100-150km as the pipeline extension to Marib was still not ready. Yemen’s flagship export grade Masila is shipped from the Ash Shihr terminal on the eastern shore of the Gulf of Aden – being the farthest from Houthi-controlled territory, this crude stream is at the same time the safest from the above mentioned ones.
One of the very few bright stories that one might search for in the past 5 years of continued conflict is the relative intactness of Yemen’s LNG industry. Albeit out of operation, the Yemen LNG plant located in Balhaf is without substantial damage (so far only one pipeline was damaged in fights) and might be restarted relatively easily given that safety conditions are suitable. Total remains the operator of Yemen LNG and along with Kogas is the main marketer of Yemeni liquefied gas (Total’s LNG marketing portfolio also includes 2.5mtpa of gas from Engie, transferred to the oil major on the back of a global deal whereby all of Engie’s LNG is transferred to Total). The LNG terminal ought to be fed by some 12.5 BCm per year of natural gas from Block 18 in the Marib Basin, it only functioned a bit more than 5 years before going into force majeure and evacuating all relevant staff in 2015.