Yemen is currently suffering severe political, military and economic instability. In the midst of this, how can those doing business there best protect their interests?

The UN special adviser warned in March 2015 that the conflict, which has now reached 21 out of 22 of Yemen's provinces and shows no sign of ending, had pushed the country "to the edge of civil war".

In January 2015, the Houthi movement took control of the capital city, Sanaa, and appointed their own governing council. The Houthis led several rebellions against the government between 2004 and 2010. The current (and internationally-recognised) President of Yemen, Abdrabbuh Mansour Hadi, left Sanaa after the Houthi rebels took control and has started taking steps to form a new interim government from the southern city of Aden. UN Security Council resolution 2216 (2015) records that the Houthis continue to "control government and security institutions" and to "take actions that are exclusively within the authority of the legitimate Government of Yemen".

Supported by former President Ali Adbullah Saleh, the Houthis have become the dominant military and political force in their stronghold in the north and in the capital, but President Hadi's supporters and local groups in the south and east (known as Popular Resistance Committees) continue to resist their attempts to consolidate political power. The fractured political leadership and lack of regional cohesion in the country has been further complicated by the presence of terrorist groups Al Qaeda and the so-called Islamic State group.

Yemen shares a long border with the Kingdom of Saudi Arabia (the KSA). The KSA's own political situation has been undergoing a period of change, with a new, younger, order in charge and keen to show its strength. That new order is, though, facing a changed political and commercial reality: a gradual thawing in the West's relationship with Iran and a difficult world stage for oil prices.

The KSA has maintained that the Houthis are financially and militarily backed by Iran and   that it fears for the security of its Yemeni border.  It has formed a coalition of Gulf Arab states, including the UAE, Jordan, Egypt, Morocco and Sudan, and commenced air strikes on Sanaa in support of President Hadi in March 2015. In August 2015, it was reported that Saudi troops had crossed the border into Yemen. Violence on the ground continues. The latest high-profile incidents in the conflict were the assassination of the governor of Aden, Jaafar Saad, by the so-called Islamic State group and the reported deaths of a number of coalition soldiers in a missile strike in the province of Taiz. However, a 7 day ceasefire began on 15 December 2015, coinciding with the start of UN peace talks aimed at finding "a durable settlement to the crisis".

Impact of political unrest and military operation on those with commercial interests and operations in Yemen

This unrest and instability has had a serious humanitarian impact - the destruction of infrastructure and restrictions on trade imposed by neighbouring countries have hindered access to basic services and commodities for the vast majority of the Yemeni population.

The economic situation in Yemen also looks bleak. The UN has warned that the instability has put the country on the brink of economic collapse and the Houthi-controlled finance ministry has introduced severe austerity measures as revenue from oil exports decreases due to falling prices and regular attacks on oil pipelines. Yemen is strategically important because it sits on the Bab al-Mandab strait, a

narrow waterway linking the Red Sea with the Gulf of Aden, through which much of the world's oil shipments pass. Some fear that the situation will jeopardise free passage through the strait and that it could lead to further instability in global oil prices.

All of these elements have combined to raise difficult legal and commercial decisions for those with interests in Yemen. Purely practically, the instability has made it increasingly difficult for multinational companies to operate within the jurisdiction, with many having been compelled to withdraw or suspend operations.

The commercial position has been rendered even more uncertain by the lack of clarity within Yemen and also within the international community as to who is in control. Many of the contractual agreements in the Energy sector involve the Yemeni State or State entities and for many commercial parties it may be unclear who is in charge of those entities, who is authorised to make decisions under contracts and, indeed, who is authorised to sue or can be sued under those contracts.

The answers may require consideration not only of the contracts but also complex areas of international law. Herbert Smith Freehills has substantial current experience in advising and representing clients from many parts of the world in the energy and other sectors on the complex issues affecting their investments in Yemen, both from a public international law perspective and acting in commercial disputes, including in connection with:

  • withdrawal, suspension and related contractual rights;
  • the contractual implications of a change of Yemeni government;
  • protections available under applicable bilateral investment treaties; and
  • interests affected by political instability of the country.