Yemen’s economy is highly dependent on oil production, with the country’s oil exports accounting for around 85 percent of export revenues and 33 percent of gross domestic product (GDP). In 2006, around 240,000 barrels per day (bbl/d) of oil was exported, primarily to Asian markets, including China, India, and Thailand. Recent high oil prices have increased Yemen’s hard currency receipts and remittances from Yemeni workers in other Persian Gulf countries. Nonetheless, Yemen continues to be the Middle East’s poorest county with a 2006 GDP per capita of US$ 880 according to the World Bank. Inflation was an average of 15.5 percent in 2006, partially resulting from the deteriorating value of the U.S. dollar.

High oil prices have also increased the country's expenditures on petroleum product subsidies, which cost hundreds of millions of dollars per year and constitute a heavy burden on the country's budget. IMF loan conditions have required the government to reduce subsidies for consumers on both oil products and electricity but these measures have proved to be unpopular. In 2005, fuel subsidy cuts resulted in riots.

Though the government of Yemen is fairly stable following the re-election of President Ali Abdullah Saleh in 2006, security remains a concern of foreign firms doing business in Yemen. Since the attacks on the USS Cole in 2000, several other foreign interests, specifically oil interests, have been attacked—these include the bombing of the Limburg oil tanker off the coast of Yemen, causing a massive fire and the leakage of 150,000 barrels of oil into the Gulf of Aden; an unsuccessful firing of a surface-to-air missile at an oil company helicopter in 2002; the 2006 foiled suicide bomb attempt against two oil facilities just prior to the elections; and the more recent attacks on oil company personnel near the border between Marib and Shabwa governorates. In addition, there have been reports of violence in rural areas, attacks on oil company personnel and kidnappings.

Political stability in Yemen is vitally important to regional oil producers, given that Yemen sits at the entrance to the Bab el Mandab strait, which links the Red Sea to the Indian Ocean. The strait is one of the most strategic shipping lanes in the world, with an estimated 3 million barrels per day (bbl/d) oil flow (please see our World Oil Transit Chokepoints report for more information). Disruption to shipping in the Bab el-Mandab could prevent tankers in the Persian Gulf and the Gulf of Aden from reaching the Suez Canal/Sumed pipeline complex, instead diverting them at great cost around the southern tip of Africa.