(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00287R001301440002-9
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: January 12, 2017
• Document Release Date: August 18, 2010
• Sequence Number: 2
• Publication Date: April 24, 1984
• Content Type: MEMO

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Central Intelligence Agency
DIRECTORATE OF INTELLIGENCE
24 April 1984
NORTH YEMEN: IMPLICATIONS OF
A SIGNIFICANT OIL DISCOVERY
St rmnary
Embassy reporting suggests that a US firm may have
discovered oil in North Yemen near the border with Saudi Arabia
and South Yemen. If North Yemen should discover oil reserves
comparable to those in southern Oman, it would have a
substantial impact on the country's economy, internal politics,
and relations with Saudi Arabia and the United States. It
would be at least three to four years, however, before
substantial quantities of oil could be exported because North
Yemen would have to develop the oil field and build oil
pipelines and shipping facilities.
North Yemen. Comments are welcome and may be addressed to Chief, Persian Gulf
the Office of Near Eastern and South Asian Analysis in response to requests
for our preliminary assessment of the implications of an oil discovery in
This memorandum was prepared by
NESA M 84-10170
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Economic Implications
A US firm is drilling for oil
in
the eastern portion of
North Yemen in the Ma'rib desert.
The
US Embassy in Sanaa
reports that already there has been
a
significant show of
hydrocarbons, including a gas flare
of
several hundred feet,
according to other reports. Further testing will be required to
determine the quantity and quality of the reserves. According to
the Embassy, the company's break-even point would be the
discovery of a quarter of a billion barrels of oil and daily
production of around 100,000 barrels. We speculate that the size
and type of oil deposits in North Yemen would resemble those
found in southern Oman. Proved, recoverable reserves in the
Dhofar region of Oman are about 1 billion barrels and consist
mainly of heavy oil. Reserves of this magnitude would support a
production rate of 120,000 barrels per day for 20 years. 7
Although such a discovery would be insignificant as far as
the world market is concerned, it would be of major significance
to North Yemen. Once the oil revenues started flowing, Sanaa
would be less beholden to foreign aid suppliers, and President
Salih's development program would no longer be threatened by the
country's precarious financial position. (See box.) New
employment and trade opportunities would develop from the boom in
the oil and construction industries. Smuggling and black market
trade probably would decline as import controls could be relaxed
once oil revenue begins to mount.
North Yemen's Economy
North Yemen is one of the world's least-developed countries--
per capita income was less than $500 in 1982. In addition, Sanaa
has one of the world's worst trade imbalances, with exports
typically covering less than one percent of imports. With worker
remittances declining, foreign exchange reserves have fallen from
$1.5 billion in 1978 to $313 million in October 1983, and are
sufficient to cover only two or three months of imports.
Inadequate revenues forced Sanaa to abandon its 1983 budget and
cut back imports. 0
North Yemen has little prospect of improving its economic
situation without an oil discovery. Foreign aid, on which Sanaa
relies for economic relief, was $900 million in 1983, about half
the 1982 level, and new commitments for 1984 are unlikely. If
more foreign aid is not forthcoming, and the current drought
continues, wee expect that economic growth in 1984 will be
negligible.
Although the construction of oil facilities might take three
to four years to complete, North Yemen's economy would still
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benefit in the interim. We believe Sanaa would obtain foreign
aid and loans more easily as its ability to repay debts
improved. In the early stages of construction, contractors might
provide their own financing and the need for infrastructure and
building materials probably would stimulate imports and foreign
The repatriation of Yemenis working abroad would be a mixed
blessing for the government, in our view. We expect that many of
the estimated 700,000 North Yemenis who work in Saudi Arabia and
the smaller Persian Gulf states would return to North Yemen in
anticipation of oil boom jobs. Their return would provide a
ready supply of labor, but also would burden North Yemen's
economic and social infrastructure and reduce the income from
worker remittances.
Internal Politics
President Salih almost certainly would use an oil find to
strengthen his hold on power by taking credit for the discovery
and the resulting economic growth. We believe economic
modernization based on oil revenues would reduce the political
importance of Yemeni tribes and increase the importance of
Western-educated technocrats in the central government. We
believe a major oil find would also increase the already
substantial political influence of North Yemen's military,
because the military is Salih's power base, and he would spend
some of the early oil revenues on weapons.
North Yemeni-Saudi Relations
We judge that an oil discovery would lead to reduced Saudi
influence, as North Yemeni dependence on Saudi financial aid
declined. Even before a discovery would be exploited, North
Yemen would seek greater independence from Riyadh, although Sanaa
would still be constrained by its need for Saudi financial aid
until oil revenues began to flow.
The Saudis could try to retain their leverage by increasing
the subventions they currently pay to prominent North Yemeni
tribal leaders and politicians, or by increasing project aid.
Riyadh might also press for immediate concessions on outstanding
issues, such as border demarcation, out of concern that its
bargaining position would deteriorate as North Yemen became more
financially independent.
The Saudis' longstanding fear of an independent North Yemen
could lead Riyadh to overreact to a discovery. Riyadh might
attempt to persuade Washington to encourage the US firm to cease
its operations, arguing that the exploration was in territory
claimed by Saudi Arabia. Alternatively, the Saudis might move
troops to North Yemen's borders, as they did after an incident in
late December, although Riyadh probably would not seek a major
military confrontation. It is possible, though unlikely, that
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the Saudis would tacitly encourage North Yemeni military and
tribal leaders to move against Salih in the event that Salih
pursued policies inimical to Saudi interests, such as greatly
expanding ties to the Soviet Union. Riyadh almost certainly
would feel threatened by the inevitable North Yemeni purchases of
sophisticated weapons systems, especially if they came from
Moscow. F__1
North Yemeni-South Yemeni Relations
We judge that an oil find would encourage Sanaa to improve
relations with Aden. A reunification of the two Yemens almost
certainly would not result, although discussions of unity
probably would increase markedly because Sanaa would seek to
express its independence from Riyadh.
We believe South Yemen would try to strengthen its recent
rapprochement with Sanaa. South Yemen might offer to allow North
Yemen to build a pipeline to Aden, which has a refinery and
harbor well suited for oil exports. We doubt that North Yemen,
however, would be likely to allow its oil exports to become
dependent on Aden's goodwill.
Aden would also seek to build goodwill with the US firm
working the North Yemen concession. The same firm may conduct
exploration in South Yemen, and the geology of the North Yemeni-
South Yemeni border is such that an oil find in North Yemen would
suggest the presence of oil in South Yemen as well. F_~
Implications for the United States
We judge that an oil discovery--and reduced Saudi influence
in Sanaa--would help bring about a more direct US relationship
with North Yemen. The US agreement in 1979 to supply arms to
North Yemen has led to problems among Washington, Riyadh, and
Sanaa. Spare parts and maintenance for North Yemen's US-made
equipment are funded by Riyadh, and the Saudis hold back on parts
and repair to influence North Yemen's policies. A more direct
relationship with Sanaa, however, probably would require
high-level discussions with Riyadh to define Washington's
relationship with both countries. We would expect Riyadh to
continuel to discourage more direct ties between Washington and
The extent to which the US is able to respond to Sanaa's
desires for a relationship independent of Riyadh's influence
largely will determine the future of North Yemeni-Soviet
relations. An expanded US presence in North Yemen would reduce
the possibility that Moscow could increase its already
substantial presence at the expense of US interests. Moscow has
about 500 military advisers in North Yemen, and most North Yemeni
military officers are Soviet trained. We judge that any
perceived reluctance by the United States to expand ties with
North Yemen would cause Sanaa to turn to Moscow for increased
technical aid, weapons, and political support. F_~
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North Yemen: Implications of
A Significant Oil Discovery
NESA M 84-10170
24 April 1984
Deputy Assistant Secretary Placke, State
Deputy Assistant Secretary Tixier, DOD
Howard Teicher, NSC
Deputy Assistant Secretary Schotta, Treasury
Deputy Assistant Secretary Boykin, Energy
Ronald Neumann, State
Christopher Ross, State
John Stempel, DOD
David Tarbell, DOD
Darnell Whitt, DOD
George Harris, State
DIA
DIA
Dave Petersen, Commerce
Roger Pajak, Treasury
DCI/SA/IA
DDI
NIO/NESA
C/NID
C/PDB
C/PES
C/CPAS/ISS
SOVA/CS/C
C/OGI/SRD
4 - CPAS/IMD/CB
1 - D/NESA
2 - NESA/PPS
1 - C/NESA/AI
1 - C/NESA/SO
1 - C/NESA/PG
3 - NESA PG /P
DDI/NESA/PG I(24Apr84) 25X1
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