Mokha Economic Brief /July 2026
Introduction
Yemen’s economy remained under significant strain during July 2026, with fiscal pressures and deteriorating living conditions continuing to weigh on the country’s fragile recovery. While the government took steps toward resuming crude oil exports for the first time since their suspension in late 2022, it also continued efforts to secure additional financing to ease pressure on public finances and support essential government spending.
At the same time, the energy sector continued to face serious operational challenges, while fuel and food prices rose across several governorates, adding to inflationary pressures and further reducing household purchasing power. International partners announced new assistance programs to support food security and livelihoods, but the scale of humanitarian needs and the limited availability of funding continue to constrain their overall impact.
Regionally, persistent security tensions linked to Houthi attacks in the Red Sea and the Gulf of Aden remained a key source of economic risk. Higher shipping and insurance costs, together with continued uncertainty over maritime security, complicated efforts to restart oil exports and added pressure to an already weakened economy. Overall, developments during July highlighted the continued vulnerability of Yemen’s economic outlook, with recovery prospects remaining closely tied to the restoration of oil revenues, improvements in public finances, and a more stable security environment.
World Bank Approves US$100 Million Grant to Support Nutrition
The World Bank approved a US$100 million grant to finance the Cash for Nutrition Project, which is expected to benefit approximately 1.8 million people across 15 governorates, with a particular focus on mothers, children, and other vulnerable groups. The project aims to improve food security and reduce malnutrition by providing cash transfers linked to the use of essential nutrition and primary healthcare services, thereby enhancing beneficiaries’ access to both food and basic health services.
The grant underscores Yemen’s continued reliance on external funding to sustain its humanitarian response, given limited public resources and the weakened capacity of domestic institutions to finance social protection programs. While the funding is expected to alleviate food insecurity and improve livelihoods for targeted households, its impact is likely to remain largely humanitarian unless accompanied by broader economic measures that strengthen purchasing power and promote market stability. Moreover, the growing scale of humanitarian needs means that such interventions are more likely to mitigate the consequences of the crisis than address its underlying economic drivers.
Government Signs Staff-Monitored Program (SMP) with the International Monetary Fund
The Yemeni government reached a staff-level agreement with the International Monetary Fund (IMF) to implement an 18-month Staff-Monitored Program (SMP) aimed at supporting economic reforms and strengthening fiscal and monetary stability. The program focuses on improving public financial management, enhancing exchange rate stability, reforming the banking sector, increasing domestic revenue mobilization, strengthening foreign reserve management, and addressing structural imbalances in the electricity sector.
The agreement reflects the government’s efforts to restore confidence with international financial institutions and lay the groundwork for structural reforms that could improve economic performance over the medium term. Although the SMP does not provide direct financing, it serves as an important framework for unlocking future financial and technical assistance from international donors and development partners, provided the government successfully implements the agreed reform agenda.
Oil Export Resumption Amid Escalating Regional Security Risks
The internationally recognized Yemeni government began preparations to resume crude oil exports following an announcement by Chairman of the Presidential Leadership Council Rashad Al-Alimi in a national address on 20 July 2026, in which he identified the restoration of oil exports as a key government priority.
Yemen’s oil exports have remained suspended since late 2022 after Houthi attacks targeted export terminals in the governorates of Hadramawt and Shabwah. Continued Houthi threats against ports and oil infrastructure have since delayed efforts to restart exports, depriving the state budget of its principal source of foreign currency revenue.
The resumption of exports would represent a significant step toward strengthening public finances at a time of persistent fiscal pressures and elevated global oil prices, potentially allowing the government to increase revenues if exports resume on a sustained basis. However, the long-term viability of renewed exports will depend on securing oil terminals and production infrastructure along the Arabian Sea coast against further attacks. It will also remain vulnerable to ongoing security tensions in the Red Sea and the Gulf of Aden, which continue to drive up shipping and marine insurance costs, increasing the overall cost of exporting Yemeni crude.
Worsening Fiscal Crisis Drives Government Toward Domestic Debt Financing
The Central Bank of Yemen in Aden resumed the issuance of Treasury Bills with an annual yield of 20%, marking a renewed reliance on domestic debt instruments after years of limited use. The move is intended to generate financing for the state budget at a time when public finances continue to suffer from the loss of oil revenues, while government expenditures and fiscal obligations have not declined at the same pace, widening the financing gap and increasing the need for domestic borrowing.
Before oil exports were suspended in late 2022, revenues from oil and gas accounted for approximately 70% of total government revenues and constituted the country’s primary source of foreign currency earnings. Their loss has significantly weakened the government’s ability to finance public spending, forcing it to resort to more expensive financing mechanisms. The 20% annual yield, unusually high for Treasury Bills, reflects the elevated cost of borrowing under current conditions and implies a growing debt servicing burden with each new issuance, while the government’s principal revenue sources remain unavailable.
In practical terms, the measure provides short-term liquidity to address immediate financing needs but does little to resolve the structural weaknesses of Yemen’s public finances. Fiscal sustainability will continue to depend largely on the resumption of oil exports and the restoration of stable government revenues.
Fuel and Essential Commodity Prices Continue to Rise Across Several Governorates
Data released by Save the Children, comparing prices between February and June 2026, showed significant increases in the cost of essential commodities and petroleum products across the governorates of Aden, Lahj, and Taiz. Tomato prices in Taiz increased by 59%, diesel prices by 56%, gasoline prices in Aden and Lahj by 42%, and rice prices in Taiz by 30%.
These trends reflect persistent inflationary pressures in local markets, driven largely by rising fuel prices and the resulting increases in transportation and production costs, which continue to push up the prices of essential goods. The sustained rise in living costs has further weakened household purchasing power, particularly amid stagnant incomes and delayed salary payments across several sectors. It has also reduced the real value of cash assistance programs, limiting their effectiveness as prices continue to outpace household incomes.
Overall, these developments point to a continued deterioration in living conditions and a widening gap between prices and incomes, making it increasingly difficult for households to meet their basic needs.
Aden Refinery Continues to Struggle Amid Deepening Operational Crisis
The Chief Executive Officer of Aden Refinery Company, Eng. Saeed Mohammed bin Mohammed, stated that the company is facing an unprecedented financial and operational crisis after oil refining operations have remained suspended for several years. The prolonged shutdown has deprived the refinery of its primary source of revenue, leaving it largely dependent on storage services for petroleum products—a business that has itself declined in recent months.
According to the CEO, the company is no longer able to cover employee salaries due to its deteriorating financial position. He noted that management is pursuing a recovery plan that includes restarting refinery operations, completing the refinery’s power plant project, and addressing shortages in technical personnel. The initiative aims to restore the refinery’s operational capacity and strengthen its role in supplying the domestic market with refined petroleum products.
The difficulties facing Aden Refinery illustrate the deterioration of one of Yemen’s most important strategic assets in the oil sector, as the facility has shifted from a productive refining complex to one with only limited operational activity. The prolonged suspension of refining operations has increased Yemen’s dependence on imported petroleum products, resulting in higher supply costs and the loss of value added that domestic refining would otherwise generate.
The refinery’s financial distress also highlights the broader fragility of state-owned institutions operating in the energy sector at a time when significant investment is needed to rehabilitate oil infrastructure. Restoring the refinery’s operational capacity would not only strengthen domestic fuel security but also reduce the fiscal burden associated with fuel imports and contribute to broader economic recovery.
Houthis Target Two Saudi Oil Tankers
The Houthi group targeted two Saudi oil tankers in the Red Sea, marking a further escalation that underscores the growing risks facing maritime security, international trade, and one of the world’s most important energy shipping corridors. The incident comes at a time of heightened uncertainty in global oil markets, with concerns that continued attacks could drive up shipping and marine insurance costs while increasing the risks associated with transporting crude oil through the Red Sea.
The implications extend beyond regional markets to Yemen’s own economy, which is relying on the resumption of oil exports to restore one of its primary sources of public revenue. Persistent security threats in the Red Sea could undermine the confidence of shipping companies and insurers, increasing the cost of exporting Yemeni crude once shipments resume and reducing the potential fiscal gains from higher global oil prices. Continued escalation therefore presents an additional obstacle to government efforts to revive the oil sector, particularly as Houthi threats continue to target oil infrastructure and export terminals. As a result, the recovery of government revenues will depend not only on the restoration of production but also on improved security conditions across the Red Sea.
Conclusion
The economic developments of July 2026 underscore the continued fragility of Yemen’s economy despite emerging signs that could support a modest improvement in public revenues, particularly through efforts to resume oil exports. However, these opportunities remain constrained by significant domestic and external challenges, including the continued deterioration of the energy sector, widening fiscal deficits, persistent inflationary pressures, and escalating security risks in the Red Sea that continue to raise the cost of maritime trade and transportation.
At the same time, international assistance remains essential in mitigating the humanitarian crisis, but it cannot substitute for comprehensive economic reforms aimed at revitalizing productive sectors and strengthening the state’s capacity to generate sustainable revenues. Overall, the month’s developments suggest that Yemen’s economic outlook will remain closely tied to the government’s ability to restore oil exports, improve public financial management, and navigate an increasingly complex security environment, which has become a decisive factor shaping the prospects for economic recovery and long-term stability.
