In a significant development in Yemen’s nine-year civil war, a delegation from the Houthi rebels arrived in the Saudi capital, Riyadh, on September 15, 2023, reportedly to sign a deal that includes a ceasefire and resolutions to other humanitarian and economic issues.1 Yemen has experienced relative calm since a UN-brokered truce took effect in April 2022. Airstrikes and cross-border attacks have stopped. The same period saw a decrease in ground fighting. In April 2023, the Saudi ambassador visited Sana’a, Yemen’s capital that has been held by Houthi rebels since 2014, and met high-level Houthi leaders.2 Along with the Saudi-Iranian détente brokered by China in March 2023,3 these developments have renewed optimism among the international community that circumstances are aligning in favor of a peaceful resolution to Yemen’s conflict. President Joseph Biden’s administration has been partially responsible for pushing the Saudis into their present conciliatory position toward the Houthis, and U.S. diplomats traveled to Riyadh in September 2023 to stress that the present truce offers a chance to “get to permanent peace in Yemen.”4
While the trajectory of events in Yemen appears trending toward an end to the conflict, the reality is significantly more complicated. Beneath the veneer of de-escalation, various mounting tensions are increasingly coming to the surface. Negotiations have been between the Saudi and Houthi leadership to the exclusion of the internationally recognized Yemeni government, known as the Presidential Leadership Council (PLC).5 The Houthis view Riyadh’s concessions as proof of their military victory and have been adamant about extending their control across all of Yemen. Additionally, a latent proxy conflict is escalating between Saudi Arabia and the United Arab Emirates (U.A.E.) in southern Yemen, adding yet another layer to the already complex conflict. These converging factors seem to lay the groundwork for the perfect storm.
A Desperate Deal Is a Recipe for Failure
The pronounced shift in Saudi Arabia’s approach to the Yemen conflict is rooted in a sense of urgency, prompted by the realization that its eight-year-long intervention has failed. Neither of Riyadh’s declared goals—ending the Houthis’ coup and restoring the legitimate Yemeni government to power in Sana’a—were achieved. Additionally, the Houthis, who benefited from the fragmentation of their enemies, ran an effective military campaign with support from Tehran and evolved into a greater threat to Saudi security. Between 2015 and 2022, the Houthis carried out nearly 1,000 missile attacks and 350 drone strikes targeting key Saudi infrastructure such as oil facilities, airports, and military installations inside Saudi territory.6 These sustained assaults forced Riyadh to revisit its priorities in Yemen in order to safeguard its borders against persistent Houthi attacks. Eventually, Saudi Arabia sought to fully disengage from the conflict, which has become an unnecessary distraction from Mohammed bin Salman’s Vision 2030 project and risks undermining the Kingdom’s aspirations to redefine itself as a peace advocate on the global stage.7
Unfortunately, recent developments suggest that Saudi Arabia’s eagerness to adopt a new approach has further emboldened the Houthis. The Saudis agreed to Tehran’s request to announce the restoration of diplomatic relations before Iran halted its support to the Houthis.8 In February 2023, the Saudis extended a gesture of goodwill by dismantling their naval inspection mechanism in the Red Sea—which the coalition had established in 2015 to prevent weapons shipments to the Houthis—thereby lifting restrictions on ships coming into the Houthi-controlled Hodeida seaport.9 By March 2023, the seaport was receiving commercial ships regularly.10 These unilateral concessions were interpreted by the Houthis as a sign that they had won the war, which they define as pitting themselves, as the only legitimate representatives of Yemenis, against a Saudi Arabia that is backed by Western powers. To make matters worse, the Saudis continue to sideline the internationally recognized Yemeni government, the PLC, keeping it in the dark as they pursue negotiations with the Houthis. This has enabled the Houthis to carry out more actions that further weaken the Yemeni government’s position.
While the Saudis promised to pay the salaries of government employees in the Houthi-controlled north, it withheld three billion U.S. dollars in aid that it had promised to the Yemeni government upon the formation of the PLC in April 2022. This limited the Yemeni government’s ability to deliver services in the territories it controlled, which further undermined its legitimacy. And while the Saudis wanted to pay the government employees’ salaries in the form of a donation to the Houthis, the Houthis demanded that payments be made directly to them from Yemeni oil and gas revenues.11 The Houthis demanded redistribution of oil revenues at the national and governorate level based on the 2014 budget, which translated into 70% to 80% of all oil revenues going to them.12 Gaining control of national oil and gas revenues will provide the Houthis with more sustainable financial resources than the one-off donation that Riyadh offered. More importantly, it will strengthen their negotiating power at expense of the Yemeni government’s legitimacy. This feeds into their overall goal, which is to gain international recognition.
To force the Saudis to deliver, the Houthis launched a painful economic war against the Yemeni government. Throughout October and November 2022, the rebels carried out a series of attacks targeting key seaports in the government-held south to bring the Yemeni government to its knees.13 These attacks forced the government to halt oil exports, which cost the government one billion U.S. dollars, amounting to roughly 65% of its revenue in that period.14 To add insult to injury, commercial ships began redirecting their routes away from Aden seaport in the government-controlled south toward the Houthi-controlled Hodeida seaport, thereby bypassing the government inspection process.15 This happened after the Houthi administration warned companies that they could not operate in the north, where most of their customers are, if they chose to dock in Aden instead of Hodeida.16 This move deprived the Yemeni government of about half of the taxes and customs revenues that it usually collects.17 In June 2023, the Houthis also banned cooking gas imports from the government-controlled region of Marib, replacing domestic gas with more expensive cooking gas imported through the Hodeida seaport, further eroding government revenues.18
While Saudi airstrikes and cross-border Houthi attacks stopped, the Houthis continue to mobilize their forces and recruit fighters. In the summer of 2023, they held military drills near the frontlines and launched attacks targeting government-aligned forces in Taiz, Marib, Shabwa, Dhale, and Lahij governorates.19 In June 2023, the Houthis organized a large military parade near Taiz in which 10,000 Houthi recruits participated in a show of force.20 These moves were designed to remind the Saudis what is at stake if they fail to succumb to the Houthis’ demands. Addressing the attendants of the military parade near Taiz, the president of the Houthis’ Supreme Political Council, Mahdi al-Mashat, said that the enemy had lost and “will lose,” revealing that his group will use “strategic weapons” in the coming period to “force the enemy to stop its conspiracies.”21
In a televised speech earlier in March 2023, the leader of the group, Abdulmalik al-Houthi, had likewise warned the Saudi-led coalition that the Houthis are “coming [for them] with a long-range, lethal missile arsenal,” advanced drones that will “roam the aggressors’ skies undetected,” and “naval and land capabilities that will reach each target in the Red Sea, Gulf of Aden, Arab Sea, and all islands.”22 The Houthis’ minister of defense similarly warned the “aggression” (a term Houthis use to refer to the Saudi-led coalition and their Western backers) that “Our military capabilities evolve every day. Every day and every hour bring us more military development, more recruitment, and higher preparedness.” He threateningly urged the coalition to “seize the opportunity” that the Houthi leader had offered, which is to end the coalition’s military intervention, leave Yemen, recognize the Houthis as the only legitimate authority in Yemen, and commit to a large reparations and reconstruction package.23 “Come back to your senses before you pay the price… The cost will be too high and too painful. Do not continue to test our strategic patience,” he added.24 The Houthi vice prime minister for defense and security also threatened to sabotage the progress of Saudi’s Vision 2030 by resuming cross-border attacks targeting Saudi ports.25
The Houthis’ Consolidation of Military and Economic Power
As the government's legitimacy continues to erode, the Houthis remain committed to advancing their aspirations. As part of Iran’s “Axis of Resistance,” the Houthis are gearing up for the fight to control Yemen with the goal of eventually liberating Mecca, Medina,26 and, ultimately, Jerusalem.27 To this end, they have been systematically building their theocratic police state.28 The group’s focus has been on building its military capabilities and recruiting fighters. It is estimated that the Houthis have managed to enlist 130,000 fighters over the course of the war, largely from the poorest segments of society.29
At the core of the Houthis’ war machinery is a jihadist council led by the group’s overall leader, Abdulmalik al-Houthi, who is supported by both Iran’s Islamic Revolutionary Guard Corps (IRGC) and Hezbollah.30 A central element of the group’s strategy to build influence within Yemen involves systematically targeting children and youth with religious and sectarian indoctrination inspired by the Iranian Revolution.31 The Houthis have made nearly 500 modifications to Yemen’s school curriculum to reinforce their ideology, particularly the notion of a divine right to rule based on the al-Houthi family’s lineage, which purportedly links to the Prophet Muhammad’s dynasty.32 Through social media, peer pressure, exploitation of poverty, and diversion of aid,33 the group has managed to draw hundreds of thousands of students into its annual summer camps. In addition to religious education, these camps provide basic combat training. Under the banner of “Learning and Jihad,” the Houthis launched a campaign this year aimed at recruiting 1.5 million children into their summer camps.34
The Houthis have been able to sustain their operations by creating various funding streams. According to the United Nations Security Council’s Panel of Experts on Yemen, “the Houthis continue to control legal and illegal sources of revenue, namely customs, taxes, zakat, non-tax revenues, and illicit fees” to enrich themselves and sustain their activities.35 The Houthis also raise money through the “use of threats of violence and coercive regulatory practices. These include the collection of illegal fees and levies from revenue-generating economic sectors such as oil and telecommunications.”36 When it seized Sana’a in 2014, the group took control of state-owned enterprises and parastatals that together constitute 95% of state revenues. During the first year of the war, the Houthis seized five billion U.S. dollars and 500 billion Yemeni Riyals (equivalent to two billion U.S. dollars at that time) from the Central Bank of Yemen in addition to collecting deposits from local banks.37 In 2019 alone, the Houthis diverted $1.8 billion that had been intended to fill the coffers of the Yemeni government to cover the payment of salaries and provide basic services to citizens.38
At present, the Houthis control 70% of Yemen’s total tax revenues, including customs and duties. Sana’a remains Yemen’s main economic center with 17 of the 18 banks that operate in the country headquartered in the city and therefore effectively under Houthi control. Various other businesses, including currency exchange companies, civil aviation authority porters, and Yemen’s major telecommunication and internet companies, are also all based in Sana’a.39
Real estate is another major source of revenue for the Houthis as the group confiscated and continues to forcibly grab large swaths of land in the areas it controls.40 In 2017, the Houthis established what they named the “Committee for Identification and Seizure of Assets Owned by Traitors” which seized properties and assets of 1,223 Yemenis opposed to the group.41 That same year, the Houthi-controlled Specialized Criminal Court created the “Judicial Custodian,” which was tasked with confiscating properties and assets of the Houthis’ opponents who had fled Houthi-controlled areas.42 This committee seized the assets of hundreds of politicians and opponents affiliated with the Yemeni government.43 The “Judicial Custodian,” Saleh al-Shaer, was sanctioned by the United Nations Security Council and the United States in November 2021 for engaging in acts that threaten peace, security, and stability in Yemen.44
Over the past several years, the Houthis have consolidated their control over the private sector. The SAM for Rights and Freedoms, a Geneva-based Yemeni human rights organization, documented more than 38 large corporations, universities, and hospitals that were confiscated by the Judicial Custodian in Sana’a alone between 2014 and 2021.45 The Houthis also amended Yemen’s tax and customs law, forming seven new customs checkpoints along the informal border between the Houthi-controlled north and the government-controlled south, through which they have increased taxes to over 30% on overland imports into their territories. Over 520 business and financial institutions were also closed by the Houthis for refusing to pay these levies. In 2021 alone, the Houthis brought 2,300 businessmen to court, detaining 50 of them.46 Similarly, in June 2023, the Houthis raided the Sana’a headquarters of the Federation of Yemen Chambers of Commerce and Industry, the entity in charge of promoting the role of the private sector in economic development, days after the federation issued a statement condemning the Houthis’ crackdown on the private sector. The Houthis then dismissed its leaders and replaced them with loyalists, effectively solidifying their control over the private sector.47 The recent diverting of commercial shipments into the Hodeida seaport will likewise mainly benefit businesses that are owned by the Houthis.48
Illegal taxation is another significant source of revenue for the Houthis. Local businesses, farmers, and even street vendors are forced to pay arbitrary taxes to contribute their “fair share” to support at least half a dozen Houthi religious and political commemorations.49 In April 2020, the Houthis enacted a new regulation imposing a khums (one-fifth) taxon many economic activities involving natural resources. According to this regulation, 20% of revenues from these activities must go to Ahl al-Bayt (more commonly referred to as the Hashemites), a term referring to those who claim direct lineage to the Prophet Muhammad, which includes the Houthi family and the leadership of the group at various levels.50 The Houthis’ enforcement of the khums tax has since expanded to include a broader range of economic activity, including money transfers, real estate, business transactions, and inheritance, to name a few.51
The Houthis also divert international humanitarian aid to their benefit.52 Through their Supreme Council for the Management and Coordination of Humanitarian Affairs (SCMCHA), which is run by individuals handpicked by the Houthi leader, the group compels the UN and international organizations to work through local organizations affiliated with the Houthis and use services such as vehicle rental companies and security contractors that are owned by Houthi leaders. Reports indicate that UN and international organizations pay salaries in US dollars as another form of support to the SCMCHA in exchange for permission to implement aid programs.53
The Houthis are profiting from a thriving war economy, reaping around 30 billion Yemeni Riyals (about $54 million) per month by selling oil on the black market. This lucrative trade has prompted the Houthis to license over 175 oil companies owned by Houthi leaders.54 Additionally, the group earned roughly one billion U.S. dollars in revenues from the drug trade in 2022 alone, according to some estimates, as the Houthis recently received equipment to manufacture Captagon in Yemen.55 Coupled with the weakness of the group’s adversaries, these various funding streams have significantly bolstered the Houthis’ financial strength and enabled them to continue their operations.
Saudi-Emirati Tension Fuels Fragmentation in the South
While the Houthis have seemingly benefited from a Saudi-Iranian rapprochement, the Yemeni government's position continues to diminish due to heightened tension between Saudi Arabia and the U.A.E. in the south. Both powers have been competing for control of southern Yemen since the start of their joint military intervention in 2015. During the first years of the war, the U.A.E. formed an array of armed forces in the south that operate outside the Yemeni government's chain of command. The U.A.E. also backs the Southern Transitional Council (STC), a secessionist body that wants to regain control of the parts of the country that had constituted the independent state of South Yemen prior to unification with the north in 1990. The U.A.E. scaled down its operations in Yemen in 2019. However, as Ibrahim Jalal explains, it switched from direct to indirect engagement in the country, relying on local proxies and allies that control most areas in the south, including the capital city of Aden.56 This has allowed the U.A.E. to sustain its influence and work toward achieving its strategic ambition of expanding its geopolitical footprint in the Red Sea.
By contrast, the Saudis back the Yemeni government, but their military support to the government has been inadequate and inconsistent. This deficiency has hindered the Yemeni government’s ability to execute a successful military campaign, inadvertently benefiting the Houthis.57 Unlike the U.A.E., the Saudis remained largely disengaged from ground operations and focused mainly on airstrikes. The Saudis have often preferred to play the role of a “mediator,” a choice that put them at a disadvantage. Notably, in August 2019, the Emiratis’ southern allies drove the Saudi-backed Yemeni government out of Aden. This event had a detrimental impact on the government’s capacity to function. The Saudis reacted by pressuring the Yemeni government and the STC to sign the Riyadh Agreement in November 2019. The agreement aimed to halt hostilities, establish power-sharing arrangements, and integrate armed forces under the authority of the Yemeni government.58 Implementation of the agreement has faced significant challenges as both sides have had different interpretations, and tension between the STC and the Yemeni government has persisted.59
Since 2017, the Saudis have been busy consolidating their control over Mahra governorate in the east of Yemen. Riyadh plans to build a substantial oil pipeline that would bypass the Iranian-controlled Strait of Hormuz and run from Mahra’s coast to Saudi Arabia’s coast. This would enhance security and cost efficiency for transporting oil.60 Meanwhile, the U.A.E. has established influence in seaports and islands in southern Yemen and the Red Sea.61 Reports reveal that the U.A.E. is building an airbase on Yemen’s strategic island of Mayun (Prim) in the Bab al-Mandab Strait.62 In December 2022, the Emiratis signed a security deal with the Yemeni government that would give Abu Dhabi the right to intervene in Yemen and its coastal areas. The Saudis view this agreement as a challenge to their Yemen strategy.63
The U.A.E.’s influence in Yemen increased with the formation of the PLC in April 2022. Four of the eight members of the PLC, which commands the bulk of the anti-Houthi armed forces, are backed by the Emiratis. During 2022, the U.A.E.’s southern ally, the STC, expanded its control into the governorates of Abyan, Shabwa, and the coastal region of Hadhramaut. This further eroded the authority of the Yemeni government in the south.64 It was not until the STC made moves to take control of the al-Wadi region in Hadhramaut that the Saudis acted. Al-Wadi is the last stronghold of the Yemeni government in the south and home to 80% of Yemen’s oil reserves.65 It shares a border of approximately 700 kilometers with Saudi Arabia.66
Tension between the two regional powers intensified after the president of the PLC, Rashad al-Alimi, formed the National Shield Forces (NSF) in January 2023. Reporting directly to al-Alimi himself, this new force is funded by the Saudis and based in the strategic al-Anad airbase located 63 kilometers north of Aden.67 The force is comprised of 9,000 fighters who operate in Aden and elsewhere in the south. There is a plan to expand the force to 15,000 recruits.68 The NSF replaced Yemeni government forces at the al-Wadi’ah border crossing with Saudi Arabia in May 2022.69 This development signifies a notable change in Saudi Arabia’s approach, indicating a departure from relying on political influence to achieve objectives within Yemen toward a strategy of greater military engagement. This change is designed to counter the U.A.E.-backed STC’s attempt to solidify its control over the remaining areas in southern Yemen.70
The STC responded to the Saudi moves by holding its sixth general assembly in the capital city of Hadhramaut, Mukalla, in May 2023. In a major blow to the Saudis, the STC managed to secure the allegiances of two influential members of the PLC, Faraj al-Buhsani and Abu Zar’ah al-Mahrami, who were named vice presidents to the leader of the STC (who himself is a member of the PLC).71 To counter the STC’s move, Saudi Arabia sponsored a dialogue among key Hadhrami groups in Riyadh in June 2023, which resulted in the formation of the Hadhramaut National Council (HNC).72 The HNC charter affirms Hadhramis’ right to manage the governorate’s political, economic, and security affairs and to quell “attempts to turn Hadhramaut into a battleground,” which is an indirect reference to STC’s mobilization to control the governorate.73 The Saudis reinforced their support to the NHC with $300 million in development projects.74In the summer of 2023, PLC president Rashad al-Alimi made special trips to Hadhramaut’s al-Wadi region and to al-Mahra governorate, both of which have strong Saudi influence, to meet with local authorities and security force commanders. During his tour, al-Alimi launched large development and infrastructure projects in the two governorates with support from the Saudis.75 He also declared his support for the devolution of power from the central government to the Hadhramaut local authority. This announcement both appeals to the local population, who have demanded this type of autonomy for decades, and is an attempt to undercut the STC in the two governorates.
The Saudis have also stepped up their military and political engagements in the southern governorate of Shabwa. In March 2023, senior Saudi officials met with military commanders from Shabwa who had been forced out of their positions after the STC gained control of the governorate in 2022.76 In April 2023, the Saudis reportedly summoned the controversial former governor of Shabwa, Mohammed bin Edyo, to Riyadh.77 Bin Edyo had been removed from his position by then-president Abdrabbuh Mansour Hadi in December 2021 under pressure from the Saudi-led coalition owing to his criticisms of the Emiratis.78 Most recently, a new group named the Sons and Tribes of Shabwa Coalition was formed in July 2023 with support from Saudi Arabia.79 Both the HNC and the Shabwa Coalition declared their support for the Saudi-backed Yemeni government in an implicit rebuke of the U.A.E.-backed STC.
The situation in the southern parts of Yemen, which constitute almost 80% of Yemen’s landmass, remains highly fragile. The Yemeni government’s presence in Aden is largely at the mercy of the STC. In mid-August 2023, soldiers from the Giants Brigade, a force that is under the command of PLC and STC member Abu Zar’ah al-Mahrami, laid siege to the office of Yemeni Prime Minister Ma’een Abdulmalik.80 As a result, the prime minister was relocated to the Saudi military compound in Aden to ensure his safety. This incident prompted the diplomatic missions of the United States, United Kingdom, and France to express their support for the Yemeni government against the siege.81
After nearly a decade of brutal conflict, Yemenis find themselves ensnared in a complex web of proxy wars and increasingly complex political-military dynamics. The Iran-backed Houthis have capitalized on their enemies’ fragmentation, which has been exacerbated by the divergent interests of the Saudis and the Emiratis. They have exploited the Saudi truce to regroup and mobilize forces and have halted cross-border attacks as a tactical maneuver to remove the Saudis from the equation. But the rebel group seems to be gearing up for what its leader calls the “battle for the long game.”82
The Houthis’ next move is to “finish the battle of liberation and independence until cleansing Yemen from the soil of invaders and occupiers,” per their leader.83 The growing rift between Saudi Arabia and the U.A.E. in southern Yemen is bringing the Houthis closer to their goal.