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YEMEN: Chaotic Venue Offers Up New Exploration Tenders

Bottom Line: Yemen is offering up new oil exploration licenses citing a great interest by foreign oil companies, but the truth is that this venue presents THE HIGHEST political risk of any venue anywhere in the world. 

Analysis: Bidding ends on 15 May and the licenses up for grabs are in the al-Sabaateen Basin, al-Rub al-Khali Basin and the Aden-Abyan Basin, according to the country’s Oil Ministry. Some of the sectors included have never been explored. There are 15 blocks (10 offshore and 5 onshore) up for auction and 20 April is the deadline for letters of intent. Earlier in April, Yemen accepted bids from nine companies for five exploration blocks.

There is massive political risk to investing in Yemen, not the least of which is the fact that the government hasn’t even come close to solidifying control over its oil resources, which will determine who can buy the most political patronage to form an authoritative leadership. Oil fields and pipelines are the key targets of attacks by various groups vying for power. Most recently, last week seven people were killed in clashes between army deserters and tribesmen in the south. Also last week, two Yemeni government soldiers were killed and two were wounded in a gunfight with tribesmen who had blown up the main Maarib oil pipeline in south Yemen two weeks after it was repaired from a previous attack. This is weekly fare for Yemen, and though the country has huge oil reserves and is strategically positioned by key sea lanes for oil tankers, it makes investing in Somalia look carefree.

Yemen Fire

This is also drone warfare territory, as a strategic venue for the US and Saudi Arabia. Increasing army desertions will pose the next big problem for Yemen, adding to the multitude of armed non-state actors on the scene. The fighting in Yemen has been further inflamed since December, when President Abd-Rabbu Mansour Hadi ordered a restructuring of the military to unify ranks split between government supporters and supporters of ousted president Ali Abdullah Saleh, whose family and friends maintain much influence over security forces and have been known to side with al-Qaeda in order to destabilize the new government. Oil revenues are THE most important aspect of this power struggle.

Recommendation: We would not touch this venue under any circumstances. Our understanding of the dynamics of the internal conflict raging here foregoes any optimistic assessment. Saleh’s power base is still strong and his forces will continue to use any means necessary to destabilize the government, including the creation of more splits within the military and coordinating attacks with non-state actors which will target oil operations and installations first and foremost. The increasing presence of external actors also skews the internal dynamics adding to the complexity and raising the stakes in terms of violence that centers around control of oil resources.

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