Aug. 30, 2014 by Darius
Yemen isn’t a country that gets a lot of press attention. For the last few weeks, the capital, Sanaa, has been rocked by protests led by the Houthi movement of northern Yemen. The protesters originally demanded that the government reinstate fuel subsidies and have since expanded their demands to include a new government altogether. Like everything else in Yemen, these fuel subsidies are more than meets the eye.
Yemen has some oil reserves but far fewer than those of its Gulf neighbors, and oil production peaked several decades ago. Nevertheless, the government has subsidized fuel for decades. Like any subsidies tend to, these fuel subsidies have grown to represent a larger and larger portion of Yemen’s budget. In the last few years, they have become 30% of the total.
So what are these subsidies used for, anyway? Some go to “normal” uses, like cars and trucks. But a large chunk of fuel is used for khat production. Khat is a mild stimulant, chewed as a leaf, that is wildly popular in Yemen – 50% of men chew it every day, typically for several hours every afternoon – and it is only used fresh.
Where does fuel enter into khat production? It turns out Yemen isn’t just running out of oil. It’s also running out of water – at an even faster rate. Five years ago, it was estimated that 40% of Sanaa’s residents might need to relocate for lack of water within 25 years. Since then, the problem has only gotten worse. Why is Yemen using water so quickly? To irrigate khat. How is the water gotten out of the ground to irrigate the khat? Diesel pumps. And now the circle back to fuel subsidies is complete.
Yemen’s fuel subsidies serve an absolutely horrendous vicious cycle. The government spends 30% of its budget on fuel, which depletes Yemen’s water supply to produce a drug that further impedes economic productivity.
Clearly, the financially responsible thing to do is to get rid of the fuel subsidies entirely, as the government tried to do. Unfortunately, the mass protests are a sign of how unpopular that move has been. Yemenis can’t usually agree on much of anything, but they can apparently agree that the government should keep spending 30% of its budget to fund the nation’s collective drug habit.