Inside the Houthis’ expanding war economy in Yemen

The rapid advance by Yemen’s Houthis down the country’s Red Sea coast has raised questions over whether the group could turn its territorial gains into new sources of revenue, adding to an already extensive war economy.

But the Houthis already had control of large sections of the Red Sea coast, including the major port city of Hodeidah, and the financial benefits associated with that. Their military gains over the past week do not necessarily change the restrictions they have to deal with as an internationally unrecognised governing authority.

Ahmed al-Shalafi, Al Jazeera’s Yemeni affairs editor,  said that the advance has been a “geographical and military gain” but not an economic one, as it doesn’t remove the international sanctions that have been placed on it, which severely restrict their ability to commercially exploit the new territory under its control through formal international channels.

But the Houthis already enjoy significant financial benefits from their long-time control of northwestern Yemen, the most populous part of the country.

Since the Houthis’ capture of the capital Sanaa in September 2014, the group has developed a centralised financial system to collect revenues through taxes, customs duties, zakat (religious alms), and other levies.

A July report by the Mokha Center for Strategic Studies described this as a “parallel economy”, estimating that the system generated direct and indirect financial resources and costs worth approximately $2.5bn annually.

Of that total, the report estimated that around $800m came from taxes and customs, $600m from additional feeds and levies, and $300m from cash and in-kind contributions to the war effort. It also counted about $100m linked to mobilisation events and another $700m in indirect costs borne by businesses through higher transport, service, and fee-related expenses.

The Houthi authorities have also revoked the licenses of 4,225 established commercial agencies – the legal local representatives for foreign companies – according to a July report by Sana’a Center for Strategic Studies, which said the move could pave the way for businesses affiliated with the group to take their place. For their part, the Houthis defended the move, claiming that the agencies had not renewed their registrations for three years.