The Houthi rebels' lifeline to the global Swift banking system has been restored after the internationally recognised Yemeni government reversed sanctions against the group.
Earlier this month, the government-controlled Central Bank of Yemen revoked the licences of six banks for not relocating from the Houthi-controlled capital Sanaa to Aden, cutting them off from the international banking system.
But under a deal signed between the Yemeni government and the Iran-backed Houthi on Tuesday, UN special envoy Hans Grundberg said, the warring sides agreed to cancel “all recent decisions and procedures against banks by both sides and refrain in the future from any similar decisions or procedures”.
"Swift is sovereign property that belongs to the internationally recognised government and given that the banks traditionally based their headquarters in Sanaa, the Houthis controlled the banking sector, while the government controls the license to operate internationally," senior researcher at the Sanaa Centre for Strategic Studies Abdulghani Al Iryani told The National.
"As in everything else, the Houthis have instruments of power and the government has the legitimacy."
The Yemeni government had earlier ordered banks in Sanaa to move their headquarters to Aden but some banks refused.
"The Houthis told them, 'if you transfer to Aden, we'll arrest your staff and confiscate your assets'. The government then sent letters blocking the banks that refused to transfer and basically revoking their access to the Swift system, which means that they turned them into local money changers," Mr Al Iryani said.
In June, the UN warned of the "potentially catastrophic ramifications" in Yemen if the Houthi-controlled areas were cut off from Swift as it would further weaken an already struggling economy in the country that has been mired in conflict for years.
Importance of Swift
The return of Swift banking services in all parts of Yemen is “significant for the country’s economy,” as it enables international transactions and remittances “which are crucial for Yemen’s economic stability,” Hani Abuagla, senior market analyst at XTB Mena, told The National.
“With Swift, Yemeni banks can process cross-border transactions more efficiently, potentially stabilising the Yemeni rial and reducing economic disparities between regions. Importantly, Swift provides better access to global markets, which is vital, given Yemen’s severe shortages of essential goods.”
Based in Belgium since its founding in 1973, the Society for Worldwide Interbank Financial Telecommunication, better known as Swift, is a member-owned co-operative that serves as an intermediary and executor of financial transactions between thousands of banks in more than 200 countries.
It is governed by a 25-member board and the organisation is overseen by G10 central banks, as well as the European Central Bank.
Swift processes transactions worth trillions of dollars everyday. It acts as a messaging system for banks, processing payment requests and keeping a record of them in secure servers in Europe and the US.
More than 11,000 institutions sent an average of 44.8 million messages a day through the Swift network in 2022, up 6.6 per cent compared to the previous year, according to its website.
"Without Swift access, Yemeni banks would have trouble handling international transactions, leading to liquidity problems and financial instability that would have worsened humanitarian situation in the country," Mr Abuagla added.
Trade would be impeded, causing shortages and rising prices for essential goods such as food and medical supplies, she said. Humanitarian aid would struggle to reach those in need, exacerbating food insecurity and limiting other services.
"If banks in Sanaa and other areas controlled by the Houthi de facto authorities are cut off from international financial institutions and networks, we will lose the ability to transfer the funds required to sustain humanitarian lifesaving operations," UN aid operations director Edem Wosornu told the Security Council in June.
The UN has warned that more than half of Yemen's population of about 18 million requires humanitarian assistance while more than two million children could face acute malnutrition.
Yemen’s economy continues to suffer amid regional tensions and the ongoing conflict in the country.
Yemen's gross domestic product is projected to shrink by 1 per cent in 2024, following a 2 per cent contraction in 2023 and a modest growth of 1.5 per cent in 2022, according to a recent World Bank report.
The economic outlook for the beleaguered country remains uncertain amid the continued regional conflict as well as fiscal pressures facing its economy.
“The recent monetary de-escalation will partially roll-back the short-term worsening of business and humanitarian conditions in Yemen, reviving internal trade and restoring remittance flows,” Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit, told The National.
“However, continued monetary bifurcation resulting from entrenched economic hostilities stretching back throughout the course of the civil conflict, including a fundamental split within the Central Bank of Yemen, will ensure economic performance remains extremely poor in the medium-term.”
The Houthis took over Sanaa in 2014, and the Yemeni government called on Saudi Arabia and its allies to form a joint coalition to help it reclaim power.
Although fighting had largely subsided in April 2022 through a UN-brokered ceasefire, several major outstanding issues remained preventing a comprehensive deal from being signed by the warring parties.
As part of the agreement, flights would resume between Sanaa and Amman in Jordan on Thursday after they had been suspended in September.
Daily flights to Egypt and India will also begin, per the agreement.
