North Yemen became independent from the Ottoman Empire in 1918. The British, who had set up a protectorate area around the southern port of Aden in the 19th century, withdrew in 1967 from what became South Yemen. Three years later, the southern government adopted a Marxist orientation. The massive exodus of hundreds of thousands of Yemenis from the south to the north contributed to two decades of hostility between the states. The two countries were formally unified as the Republic of Yemen in 1990. A southern secessionist movement and brief civil war in 1994 was quickly subdued. In 2000, Saudi Arabia and Yemen agreed to delineate their border. Fighting in the northwest between the government and the Huthis, a Zaydi Shia Muslim minority, continued intermittently from 2004 to 2010. The southern secessionist movement was revitalized in 2007.Public rallies in Sana'a against then President SALIH - inspired by similar demonstrations in Tunisia and Egypt - slowly built momentum starting in late January 2011 fueled by complaints over high unemployment, poor economic conditions, and corruption. By the following month, some protests had resulted in violence, and the demonstrations had spread to other major cities. By March the opposition had hardened its demands and was unifying behind calls for SALIH's immediate ouster. In April 2011, the Gulf Cooperation Council (GCC), in an attempt to mediate the crisis in Yemen, proposed the GGC Initiative, an agreement in which the president would step down in exchange for immunity from prosecution. SALIH's refusal to sign an agreement led to further violence. The UN Security Council passed Resolution 2014 in October 2011 calling for an end to the violence and completing a power transfer deal. In November 2011, SALIH signed the GCC Initiative to step down and to transfer some of his powers to Vice President Abd Rabuh Mansur HADI. Following HADI's uncontested election victory in February 2012, SALIH formally transferred his powers. In accordance with the GCC initiative, Yemen launched a National Dialogue Conference (NDC) in March 2013 to discuss key constitutional, political, and social issues. HADI concluded the NDC in January 2014 and planned to begin implementing subsequent steps in the transition process, including constitutional drafting, a constitutional referendum, and national elections.The Huthis, perceiving their grievances were not addressed in the NDC, joined forces with SALIH and expanded their influence in northwestern Yemen, culminating in a major offensive against military units and rival tribes and enabling their forces to overrun the capital, Sanaa, in September 2014. In January 2015, the Huthis surrounded the presidential palace, HADI's residence, and key government facilities, prompting HADI and the cabinet to submit their resignations. HADI fled to Aden in February 2015 and rescinded his resignation. He subsequently escaped to Oman and then moved to Saudi Arabia and asked the GCC to intervene militarily in Yemen to protect the legitimate government from the Huthis. In March, Saudi Arabia assembled a coalition of Arab militaries and began airstrikes against the Huthis and Huthi-affiliated forces. Ground fighting between Huthi-aligned forces and resistance groups backed by the Saudi-led coalition continued through 2016. The UN brokered a cessation of hostilities (COH) that reduced airstrikes and fighting across the country for several months in mid-2016. Meanwhile, UN-backed peace talks in Kuwait broke down in August 2016 without agreement. The conflict escalated, and subsequent attempts to declare a COH or resume peace talks have failed. The Huthis and SALIH’s political party announced a Supreme Political Council in August 2016 and a National Salvation Government, including a prime minister and several dozen cabinet members, in November 2016, to govern in Sanaa and further challenge the legitimacy of HADI’s government.
Yemen is a low-income country that faces difficult long-term challenges to stabilizing and growing its economy, and the current conflict has only exacerbated those issues. The ongoing war has halted Yemen’s exports, pressured the currency’s exchange rate, accelerated inflation, severely limited food and fuel imports, and caused widespread damage to infrastructure. More than 80% of the population is in need of humanitarian assistance and over half are food insecure.Prior to the start of the conflict in 2014, Yemen was highly dependent on declining oil and gas resources for revenue. Oil and gas earnings accounted for roughly 25% of GDP and 65% of government revenue. The Yemeni Government regularly faced annual budget shortfalls and tried to diversify the Yemeni economy through a reform program designed to bolster non-oil sectors of the economy and foreign investment. In July 2014, the government continued reform efforts by eliminating some fuel subsidies and in August 2014, the IMF approved a three-year, $570 million Extended Credit Facility for Yemen.However, the conflict that began in 2014 stalled these reform efforts and ongoing fighting continues to accelerate the country’s economic decline. In September 2016, President HADI announced the move of the main branch of Central Bank of Yemen from Sanaa to Aden where his government could exert greater control over the central bank’s dwindling resources. Regardless of which group controls the main branch, the central bank system is struggling to function. Yemen’s Central Bank’s foreign reserves, which stood at roughly $5.2 billion prior to the conflict, have declined to negligible amounts. The Central Bank can no longer fully support imports of critical goods or the country’s exchange rate. The country also is facing a growing liquidity crisis and rising inflation. The private sector is hemorrhaging, with almost all businesses making substantial layoffs. Access to food and other critical commodities such as medical equipment is limited across the country due to security issues on the ground. The Social Welfare Fund, a cash transfer program for Yemen’s neediest, is no longer operational and has not made any disbursements since late 2014.Yemen will require significant international assistance during and after the protracted conflict to stabilize its economy. Long-term challenges include a high population growth rate, high unemployment, declining water resources, and severe food scarcity.