Murphy's Law: Follow The Oil Money

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June 21, 2016: Despite the capture of the Yemen capital by Shia rebels in 2014 the government (now in Aden, the “temporary capital) quietly agreed to a truce with the rebels when it came to the Yemen Central Bank that was still in the Shia occupied capital. That bank controlled the national money supply and foreign exchange reserves that are used to pay for essential food imports. The Central Bank also provides money to pay government employees. Although the Shia occupation of the capital and many other parts of Yemen disrupted the economy the $4.7 billion in foreign reserves enabled the Central Bank to continue paying for imports and pay salaries of some government employees in rebel and government controlled areas. This is one thing Iran (which backed the rebels) and Saudi Arabia (who led a coalition that backed the government) unofficially tolerated.

This sort of “Central Bank” truce has been a common practice in several other civil wars in the region. Libya is a good example but such unofficial agreements don’t always work. In Iraq the government continued to pay civil servant salaries in Mosul (the second largest city in Iraq) after it was captured by ISIL (Islamic State in Iraq and the Levant) in mid-2014. But that arrangement did not last long because ISIL leaders proved impossible to deal with.

Such unofficial truces work in countries like Libya and Yemen because in both most government income comes from oil exports and these are usually interrupted by a civil war. This leaves most people in these nations without essentials like food, medicine and even fuel. Oil dependent economies often allow local agriculture to be driven out of business by cheaper imported food while at the same time promoting population growth that cannot be supported by the local economy if the oil exports stop. These nations usually build up reserves that will last from a few years (Yemen) to nearly a decade (Libya) if non-essential imports are cut and other nations can be persuaded to send free food. These truces are only a temporary solution and they often backfire by providing enough relief to enable the fighting to continue.

 


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