US embassy cable - 03SANAA819

C O N F I D E N T I A L SECTION 01 OF 02 SANAA 000819 
 
SIPDIS 
 
E.O. 12958: DECL: 04/14/2008 
TAGS: ECON, ETRD, EPET, YM, ECON/COM 
SUBJECT: PRESS PLAYS ON EXAGGERATED ECONOMIC FEARS, ROYG 
PUNCHES BACK 
 
Classified By: Classified by A/DCM Ken McKune for reasons 1.5 b. and d. 
 
1. (C)  Summary: Grave economic consequences from the war in 
Iraq have been predicted in both official and unofficial 
Yemeni press. However, most of the articles have been based 
on conjecture and faulty math. In response, ROYG officials 
have been reinforcing positive economic news and developing 
new trade and supply policies to assure the public that the 
economy is stable. End Summary. 
 
2.  (U) Press reports in both the official and opposition 
media have run several stories  projecting a severe negative 
impact to the economy of Yemen from the war in Iraq. One 
popular scenario predicts budget losses to the ROYG economy 
if oil drops to $8 a barrel. Another, repeated frequently in 
the English language press, is that the Ministry of Industry 
and Trade has launched an initiative to fix the prices on 
thirteen essential commodities. To counter this, the ROYG 
officials have been promoting a new trade and supply policy, 
making several statements affirming that there are no food 
shortages, and announcing new oil finds. 
 
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8 USD per Barrel of Oil ? 
------------------------- 
 
3. (U) Dr. Muhammed Al-Maytami, a professor of Economics at 
the University of Sanaa, published an article in Al-Hayat on 
March 2nd that outlined three scenarios for Yemen if the 
price of oil drops to 20, 18 and 8 USD a barrel.  According 
to Dr. Al-Maytami's math, if oil drops below 20 USD per 
barrel,  Yemen would likely lose 500 million USD a year. 
However, his worst case scenario has oil dropping below 8 USD 
per barrel,and Yemen losing 1.2 billion USD a year. The $1.2 
billion figure for loss has been repeated by al-Jazeera, 
al-Thawra, al-Hayat and the Yemen Times, often without any 
reference to the fact that this figure is based on an 8 USD 
per barrel price. 
 
4. (U) According to Dr. Al-Maytami, the sole strategy of the 
U.S. war on Iraq was to protect oil prices and keep them 
under twenty dollars a barrel.  In all three price scenarios, 
implementation of the ROYG's Poverty Reduction Strategy would 
be delayed because much of the money planned to finance this 
project was to originate from oil revenue. While most 
government officials stayed away from such speculation, Under 
Secretary for Planning and Development  Mutahhar al-'Abbasi 
 
SIPDIS 
told Al-Hayat that Yemen's 4-5 percent growth rate could be 
eliminated if the price of oil continues to fall, and added 
that this loss could have a negative affect on the ability of 
the ROYG to meet their poverty eradication goals. 
 
5. (C) Comment: According to the World Bank statistics, 
Yemen's budget is based on the price of oil being 21 dollars 
a barrel. As this cable is written, oil is about 29 USD per 
barrel. Therefore, the price can fall much farther without 
significant harm to the ROYG's budget planning. End Comment. 
 
 
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Price Fixing by the Ministry of Industry and Trade 
--------------------------------------------- ----- 
 
5. (C) Claiming a crisis in foodstuffs and supplies, the 
Yemen Times ran a story on April 6, repeated by several 
internet news outlets, stating that the Ministry of Industry 
and Trade had resorted to price fixing to control food 
shortages.  Arab Bank Manager Mahdi Allawi told Pol/Econoff 
that his business contacts were incredulous over the idea of 
price fixing, and thought the ROYG was not powerful enough to 
enforce such an economic agenda. He later confirmed that 
there were no such price fixing plans by the ROYG. 
 
6. (C) Post obtained a copy of trade and supply proposal and 
confirms that there are no subsidies or price restrictions 
discussed in the plan. However, the Ministry of Industry and 
Trade has been given authority to oversee production to 
ensure that there are no food shortages. An Embssy FSN 
recently traveled to Al-Jowf, a rural northern governorate, 
and reports that he saw no food shortages.  Some businessmen 
Pol/econoff have spoken with have reported that business is 
indeed down because of the war, but there have been no 
accounts of empty shelves and wide-spread hoarding of food by 
Yemenis. Comment: While misrepresented, the new supply 
proposal is most likely an effort to assure the average 
citizen that the war will not drastically affect their 
day-to-day lives. End comment. 
 
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ROYG Pushes Economic Success Stories 
------------------------------------ 
 
7. (C) In an effort to get out in front of the dire 
predictions, several government officials have reinforced 
positive economic news. Prime Minister Ba Jammal affirmed on 
several occasions that there were no food shortages in Yemen. 
 Later, Minister of Oil and Minerals Rashid Salih said his 
ministry would soon declare new oil discoveries in Hadhramout 
and Shabwah. On April 3, he told Yemen's Sabaa news agency 
that "oil sales, navigation and even investments didn't get 
affected by the war."  Reinforcing the message, Minister of 
Trade and Industry Muhammed Uthman noted on several occasions 
that food supplies were stable and even threatened to punish 
those who raise prices to gain economic advantage as a result 
of the war. 
 
8.(C) Comment: Economic worries over a significant drop in 
oil prices and food shortages reflect greater concerns over 
long-term economic stability in Yemen.  It is widely 
understood that oil revenues account for approximately 35% of 
GDP, although some of the articles referred to in this piece 
claim that 95% of Government revenue comes from oil.  Many 
Yemenis Pol/Econoff has spoken to, including several FSNs, 
believe part of the U.S. strategy behind the war in Iraq is 
securing cheap oil. Therefore articles that emphasize drastic 
price drops in oil and the subsequent harm to the Yemeni 
economy, however farfetched, are likely to resonate with the 
average Yemeni citizen. 
HULL