Government Subsidies May Increase Smuggling of Oil Derivatives from KSA to Yemen

National Yemen

Oil facilities

Asma al-Mohattwari

One month ago, a Saudi newspaper revealed that an escalating monitoring movement has been organized to monitor the smuggling of petroleum products by the Saudis to Yemeni territory because of the price difference. A Saudi economic newspaper said that border guards foiled large amounts of derivatives on their way to Yemen. In light of the escalation of the oil derivatives’ crisis in Yemen, the new dosage and new oil derivatives prices, the smuggling of petroleum products from Saudi Arabia to Yemen has increased.

Abdualghani al-Humidi, General Director of Oil Port Customs, said that Yemen is a country that is producing oil and has its own refineries, despite the fact that it exports oil and its consumption is from imported and smuggled oil. “The new prices for the oil opens the appetite of the neighboring countries, the smugglers use black market to smuggle oil in a systematic manner because the beneficiaries are the heads in Yemen.”

In 2012, the Yemeni government held a lengthy meeting included all ministers to activate the customs procedures of the oil port and accepted a package of controls. “If they applied the controls, the smuggling of oil derivatives would reduce, especially since those controls are taken from the Customs Law, which is supposed to be applied without a meeting. But they didn’t apply it,” said al-Humidi.

According to al-Humidi, the process of oil smuggling, which costs the state large sums of money and led to the occurrence of an economic collapse of the Yemeni economy.  He added that the government did not raise the oil subsidies, but raised the prices and still pays the financial subsidies in another way, under the name of a local maritime transport that cost 50 dollars for every ton. The exports of the Aden Refinery Company in May 2014 cost 124,962 YR for petroleum, 227,611 YR for diesel, 157,113 YR for oil, and 153,348 YR for korsin. The total is 663,034 YR, and if the total multiples by 50 dollars it will be 33,151,700 YR a month and 397,820,400 YR a year. The total will be more than 85 billion YR annually for the local transport.

A governmental report noted that support expenditures of petroleum products drained more than 583 billion riyals from the actual total public expenditure in the state budget for the year 2013 and 5 trillion riyals, or 22 billion USD, during the past ten years. In 2014, the total spent by the state in oil subsidies during the past months amounted to 3 billion dollars, which form 20% of the total public expenditure of the state budget.

The report showed that spending these funds to support the derivatives may bring the Yemeni economy to a critical and dangerous stage, as it is causing a deficit about 5 billion USD and 13% of GDP. It revealed an increase in domestic consumption of oil products last year, more than 390 million liters and the domestic consumption of oil derivatives reached to 7.1 billion liters in 2013, compared to 7.6 billion liters in 2012. Economists proved that this increased is because of the increased activity of smuggling to and from neighboring countries.

The report stressed that the rise of oil subsidies are urgently becoming a national necessity to avoid an economic collapse. It indicated that the vast sums that will be provided after raising the support can be directed to the improvement of education, health services, and security as well as investment in infrastructure and providing jobs.

Another report aimed to answer the questions of the public, about who are the real beneficiaries from oil subsidies. The report said that the great part of the subsidies goes to benefit rich people, smugglers, and black market traders, and little of it benefits the poor. Oil derivatives consumption from the poor is much less than the consumption of the rich and if a riyal goes to the benefit of the poor, 23 riyals go to the rich. 35% of the support goes to 20% of the richest Yemenis, and only 10% of the support goes to the benefit of boor.

The dosage came as an attempt to end the economic crises of Yemen, but most Yemenis don’t accept it because it makes their lives more difficult. They went out to the streets to demonstrate the dosage that raised the price of a liter of diesel to 200 riyals from 125.

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