On July 22, the United Nations facilitated an agreement between the U.N.-recognized government of Yemen and the Houthis regarding a series of economic measures overseen by the Central Bank of Yemen . This accord has ignited significant debate within Yemen. Previously, the Central Bank of Yemen had enforced restrictions on Houthi-controlled areas. These actions, fiercely contested by the Houthis, were broadly endorsed by many Yemenis who viewed them as essential to mitigate economic instability instigated by the Houthis. However, the new U.N. agreement, which lifts these restrictions, has engendered a sense of betrayal among these supporters , who perceive the accord as a concession to the Houthis. In a long, bloody military conflict in which each side has deployed whatever economic leverage it could muster to bolster military pressure on the other side, it seems clear in these latest developments the Houthis’ overall military might and regional clout have for all practical purposes enabled the group to undermine this application of economic pressure by its rivals that control the Central Bank of Yemen.

Just a day after the U.N. deal was announced, Ahmed Ghaleb Al-Mabaqi, the governor of the Central Bank of Yemen, submitted his resignation to the Presidential Leadership Council in protest of the accord. However, the Presidential Leadership Council swiftly rejected his resignation, an indication perhaps that blame did not attach to the central bank for the failed pressure campaign and that effective leadership of the bank would continue to be necessary.

According to the U.N., the agreement aims to stabilize Yemen’s economy, ensure the payment of public sector salaries, and facilitate humanitarian aid. Nevertheless, given the persistent threat posed by the Houthis, there are widespread concerns the Houthis manipulated these issues to escape the economic pressure they were under and could put payment of salaries and delivery of aid in jeopardy again when they choose to. Meanwhile, the deal inadvertently legitimizes the Houthis, and implicitly showcases their dominance in the north and their regional clout, effectively rewarding their control over northern territories and potentially consolidating their power.

The Central Bank of Yemen in Aden has sought to regain control over Yemen’s financial system, leveraging international sanctions and access to the SWIFT banking network to pressure the Houthis into concessions, particularly aiming to resume oil and gas exports, once the lifeblood of Yemen’s economy. This struggle for economic control has its roots early in the conflict. In September 2016, amid escalating tensions, then- President Abd Rabbu Mansour Hadi relocated the Central Bank of Yemen from Sanaa to Aden. This controversial move created two competing central bank authorities – the U.N.- recognized one in Aden and the Houthi-controlled one in Sanaa – leading to economic turmoil, with each side implementing separate fiscal policies and currencies. In a recent escalation of these long-standing tensions, on July 7, the Central Bank of Yemen revoked the licenses of six major banks demanding their relocation from Sanaa to the temporary capital, Aden.

The Central Bank of Yemen’s attempt to force relocation of the Sanaa-based banks was a calculated maneuver to restrict the Houthis’ access to the banking system; the effort to enlist such banking activity in the broader pressure campaign against the Houthis ultimately fell short. Well before the July 7 central bank order, the Houthis were effectively outmaneuvering these fiscal efforts to apply pressure; the group maintained significant control over financial operations in their territories and introduced their newly minted 100 Yemeni rial in April. They also continued to take steps to try to undermine the impact of the sanctions and depreciate Yemen’s currency.

By exerting control over the currency and exacerbating the country’s economic crisis, the Houthis aim to force the government and its allies to negotiate on terms previously deemed unreasonable. A key element of this strategy is their refusal to pay civil service salaries since 2014, instead pressuring the government and Saudi Arabia to cover these costs, which would include salaries for Houthi fighters and officials.

The U.N.-facilitated agreement, which included repealing financial sanctions by the Central Bank of Yemen and a commitment to avoid similar actions in the future, has provided economic relief to the Houthis. This alleviation of economic pressure allows them to reallocate resources that would have been used to navigate financial isolation toward their military operations and sustain their large army, which has swollen with new recruits since the Gaza war began. This has enabled them to extract more resources through taxation and remittance fees to feed and arm their troops. In this context, the U.N. agreement has bolstered their capacity to project military power, both domestically and regionally.

Houthi Economic Strategy and Geopolitical Pressure

The Houthis have strategically focused on consolidating their economic power, imposing double tariffs (tariffs in addition to those levied – and controlled – by the U.N.-recognized government of Yemen) and similarly redundant customs duties whose revenue they control, while channeling funds and resources into their military industry. This has left communities under their control dependent on external support. The Houthis’ inability to pay civil servant salaries, coupled with efforts to shift this financial burden onto Yemen’s U.N.-recognized government and Saudi Arabia, has exacerbated the country ‘s economic turmoil. The oil embargo enforced by the Houthis through attacks on southern ports to halt oil exports has further strained Yemen’s economy, impacting communities in both the North and South. With these acts of blockading hydrocarbon exports and capturing customs revenue after the easing of restrictions on the port of Hodeidah, the Houthis have pushed the Yemeni government to the brink of bankruptcy. The government, now wholly dependent on Saudi grants, has struggled to counter these tactics.

Saudi Arabia’s Strategic Calculus

Feeling the cold shoulder of its erstwhile ally, the United States, and confronting the capricious winds of global politics, Saudi Arabia found itself isolated and forced to act in its own interests. Faced with the looming threat of Houthi military actions and the lack of robust and immediate international support, Riyadh took decisive action to mitigate risks and promote stability. Leaks from anonymous sources suggest the Saudis exerted diplomatic pressure and imposed economic leverage on Yemen’s Presidential Leadership Council to comply with the U.N. agreement and reverse the Central Bank of Yemen’s measures.

In this context, the Saudi decision to exert such pressure can be understood as a calculated move to maintain regional stability and protect its interests. This maneuver underscores the intricate balance of power and influence in the region, highlighting the challenges faced by Saudi Arabia in navigating a turbulent geopolitical landscape without allies or guarantees of external support.

Implications for Regional Stability

While Saudi pressure on Yemen’s U.N.-recognized government makes clear the realities behind this U.N.-brokered central bank deal, there are broader effects of the agreement. By failing to maintain existing pressure or impose sufficiently stringent new conditions that address the Houthis’ military aggressions and their disruptive role in the region, the U.N. deal risks undermining long-term peace and security. Meanwhile, there is persistent speculation that the international community is rushing Yemen toward a political compromise to end the conflict, which is extremely problematic given the Houthis’ military capability and regional clout that can distort such negotiations in their favor. Ideally, any negotiations should compel the Houthis to curb their militant activities and commit to genuine, verifiable peace-building measures. Without such provisions, any agreement may prove to be a pyrrhic victory, offering short-term calm constrained by the prospects of longer-term instability.

Saudi Arabia’s cooly calculated but problematic response highlights its struggle to ensure national security in a broader regional environment where traditional alliances are fraying, as the power and influence of the largely united, Iran-supported Houthis are in the ascendant and Riyadh’s long-term allies in the South are riven with divisions. Riyadh’s coercive measures toward the Yemeni government were not merely about reversing financial policies but about countering a more profound existential threat: ominous Houthi warnings they would target Saudi Arabia if this economic pressure was not relieved.

Looking ahead, the international community should consider a more robust and coordinated strategy to protect the Yemeni people from policies that could harm them in the long run. Fully considering the needs and welfare of the Yemeni people would likely justify imposing stricter sanctions on the Houthis, ensuring compliance with peace agreements, and providing unwavering support to Yemen’s U.N.- recognized government. Unfortunately, the international community’s attention is no longer focused tightly on Yemen, and realpolitik calculations are shaping the decision making of regional and international actors, calculations based on military and political realities now evident on the ground – and among the warring parties – in Yemen. Failure of the international community to redouble efforts to sanction the Houthis and support Yemen’s U.N.-recognized government – a failure that seems more predictable with every passing week – will likely result in the Houthis continuing to expand their influence and control. That reality points to further destabilization, in Yemen and the region. Only through a concerted effort by the international community can the cycle of conflict be broken and a sustainable peace achieved. Despite the urgency, the prospects for such an effort do not appear promising.