Houthi banknote ban sparks crisis in Yemen

Yemeni riyal banknotes are seen at the Central Bank of Yemen in Sanaa. The liquidity crisis has prompted exchange companies to freeze government salaries. (Reuters)
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Updated 20 January 2020

Houthi banknote ban sparks crisis in Yemen

  • Locals are bracing for a spike in fuel prices, which occurs when riyal dives

AL-MUKALLA, Yemen: Prices of basic imported goods increased 10 percent in government-controlled areas of Yemen this weekend — a result of the Houthi ban on newly printed banknotes.

“Importers told us the increase is due to the fall of the Yemeni riyal against the dollar and the Saudi riyal,” Mohammed, a shop owner in Al-Mukalla told Arab News.

The Iran-backed Houthis issued a ban on the use of banknotes released by the Central Bank in Aden, saying the move is meant to stop inflation and the deterioration of the Yemeni riyal against hard currencies. The Houthis have vowed to confiscate new bills and punish traders who possess or use them.

When the Houthis issued the ban a month ago, the Yemeni riyal was trading at 600 against the dollar.

The riyal has since fallen in value to around 650, forcing local importers to increase the prices of goods, and demonstrating
how areas liberated from the Houthis are still vulnerable to their economic decisions.

Locals are also bracing for a spike in fuel prices, which usually occurs when the Yemeni riyal dives.

Since December, Houthi-controlled areas such as Sanaa and other heavily populated areas in northern Yemen have suffered from a severe credit crisis that has pushed locals to exchange new bills with scarce and damaged old ones, or converting them to the dollar or Saudi riyal.

The liquidity crisis has prompted local exchange companies to freeze government salaries, exacerbating suffering in a country that is experiencing the world’s worst humanitarian crisis, according to the UN. 

“My agency managed to get rid of new notes here and there. We now only accept Saudi riyals or old bills,” a young man who runs a travel agency in Sanaa told Arab News on condition of anonymity to protect his identity. 

“Traders who have a lot of new bills smuggle them inside goods to be delivered to government-controlled areas, where they’re exchanged for old banknotes.”

The dollar is traded at 580 Yemeni riyals in Houthi-controlled areas, lending weight to economists’ speculation that the decision could create two economies, derail business between liberated areas and those under Houthi control, and boost currency arbitrage on the black market. 

Another repercussion of the ban is the unprecedented level of smuggling of hard and local currency between north and south.

In Al-Mukalla, local exchange companies told Arab News on Sunday that big traders in Sanaa smuggle hard currencies into liberated areas, where they are sold at higher rates. 

“They buy the dollar at 580 in Sanaa and sell it here at 640,” said Abu Awadh, a worker at a local exchange company who used a nom de guerre because he is not authorized to speak to reporters. Demand for the dollar and the Saudi riyal has decreased for the first time in years, he added.

Despite an abundance of the dollar in the market, the Yemeni riyal continues to plunge. According to local traders, the reason is that currency dealers move dollars between liberated areas seeking higher rates. 

The internationally recognized government in Aden, which has condemned the ban, appears powerless against its repercussions.

The Economic Reforms Team, a group of economic experts, warned that the Houthi decision could cause humanitarian, economic, social and political consequences. It urged warring parties in Yemen not to use the economy as a weapon. 

Huge blast at Iran-Turkey pipeline halts gas supply

A general view of oil tanks at Turkey's Mediterranean port of Ceyhan, which is run by state-owned Petroleum Pipeline Corporation (BOTAS), near Adana, Turkey, February 19, 2014. (REUTERS)
Updated 10 min 20 sec ago

Huge blast at Iran-Turkey pipeline halts gas supply

  • Kurdish militants from the PKK have occasionally attacked oil and gas pipelines coming from Iraq and Iran

ANKARA: A powerful explosion at a natural gas pipeline that brings gas from Iran to Turkey has halted supply to the country.
Flames caused by the explosion on Tuesday at the eastern border city of Agri were visible from nearby villages.
Iranian officials believe that the explosion near the Gurbulak border gate with Iran was caused by a terrorist attack. Turkish security forces are investigating the cause of the incident.
“The pipeline has exploded several times in the past. It is also likely that the Kurdistan Workers’ Party (PKK) has carried out the blast,” Mehdi Jamshidi-Dana, director of National Iranian Gas Co., told Iran’s state news agency IRNA. Turkish border guards left the area as a precautionary measure against the coronavirus pandemic. Jamshidi-Dana implied that the terrorists took advantage of this security vacuum.
Following the blast, a member of the outlawed PKK was killed in an operation carried out by Turkish border units while he was trying to cross into Turkey through Iran.
In early March, Turkish security forces launched another operation to track attackers near the Iranian border after one Turkish customs agent was murdered and several others were wounded by a rocket attack that hit an armored bus carrying customs staff.
Kurdish militants from the PKK have occasionally attacked oil and gas pipelines coming from Iraq and Iran.
The same line was closed over a PKK attack in July 2015, while a subsequent attack in April 2018 was prevented by Turkish security forces.
Turkey is among the few customers of Iranian gas, although Iran’s total natural gas export to Turkey is dropping each year. Turkey imported 7.7 billion cubic meters of gas from Iran in 2019, equivalent to 17 percent of its total gas imports.
The pipeline’s repair works are expected to take about four days before gas exports can resume.
Earlier this month, Turkish-Iranian land and air borders were sealed over the coronavirus outbreak.