Saudi Arabia’s ambassador to Yemen is leaving the capital city Sanaa and moving to the southern city of Aden. Other Arab countries in the Gulf Cooperation Council (GCC) are expected to follow suit.

Shia Iran-backed ethnic Houthis from northern Yemen last October invaded and occupied Sanaa. The constitutional president Abd-Rabbu Mansour Hadi last month first resigned then escaped the Houthis and fled to Aden, where he has a power base among Sunni tribes.

Now Hadi is essentially setting up Aden as a second capital, splitting the country into North and South Yemen. North and South Yemen were separate countries that were united in 1990, but it now appears that they are close to splitting into two countries again.

For the West, the biggest fear is that all this chaos will give rise to a stronger Al-Qaeda in the Arabian Peninsula (AQAP), which is headquartered in Yemen. With regard to this point, there are some analysts saying that AQAP will not gain strength, because both Hadi and the Houthis oppose AQAP. However, there are now three major centers of power in Yemen — the Houthis, Hadi in Aden, and AQAP — and the possibility of a new civil war cannot be discounted.

As UN Secretary-General Ban Ki-moon recently said, the country “is collapsing before our eyes.”

Yemen’s banks deteriorate as the economy collapses

Fears of economic collapse are causing Yemeni citizens to withdraw their US dollar savings from banks and keep the dollars at home. Yemen is facing economic collapse for several reasons:

• The political chaos of the country having two capitals after the Houthi seizure of Sanaa is preventing many businesses from operating.
• The fighting has reduced oil exports, Yemen’s main source of dollars. At the same time the price of oil has been falling, so even less money is coming in.
• Saudi Arabia used to provide aid to the Sunni-led government of Abd-Rabbu Mansour Hadi, but that aid was cut off when the new Shia-led Houthi government took over.

It is possible that the Sanaa government will soon be unable to pay salaries within a few weeks. The economic collapse represents a recruiting opportunity for Al-Qaeda in the Arabian Peninsula (AQAP). Widespread protests and riots, as well as terrorist acts by AQAP, are expected to increase.