SOUTH YEMEN'S OIL RESOURCES: THE CHIMERA OF WEALTH

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89S01450R000500500001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 29
• Document Creation Date: December 27, 2016
• Document Release Date: August 2, 2012
• Sequence Number: 1
• Publication Date: September 1, 1988
• Content Type: REPORT

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Intelligence AsTER Fi
ir
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South Yemen's Oil Resources:
The Chimera of Wealth
A Research Paper ,
Secret
NESA 88-10056
GI 88-10090
September 1988
Copy 396
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South Yemen's Oil Resources:
The Chimera of Wealth
A Research Paper
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This was prepared by
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Office of Near Eastern and South
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Asian Analysis, and
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Office of Global Issues
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It was coordinated with the Directorate of Operations.
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Comments and queries are welcome and may be
directed to the Chief, Persian Gulf Division, NESA,
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Reverse Blank Secret
NESA 88-10056
GI 88-10090
September 1988
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Scope Note
Reverse Blank
South Yemen's Oil Resources:
The Chimera of Wealth
This Research Paper examines South Yemen's oil potential and the impact
of oil development on its economy, domestic politics, and foreign relations.
This is the second, and more speculative, study assessing the oil potential of
the two Yemens.
Our evaluation of South Yemen's oil potential is based on the
results of contract studies that estimate the quantity of recoverable oil and
gas resources with the aid of photogeology and industry-standard methods
of subsurface geologic analysis. These studies permitted us to identify
prospective petroleum areas and estimate the amount of recoverable oil and
gas in South Yemen.
111
Secret
NESA 88-10056
GI 88-10090
September 1988
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V.11 CIL
C.
Summary
Information available
as of 31 August 1988
was used in this report.
South Yemen's Oil Resources:
The Chimera of Wealth
South Yemen's potentially recoverable oil resources amount to at least
5 billion barrels, about the same level of reserves as in Egypt, according to
a contractor study and our own analysis. The Soviet Union, Aden's
primary benefactor, is developing the bulk of South Yemen's oil resources,
but Aden is frustrated with the slow progress of Soviet drilling and is
seeking greater participation by Western firms. We believe Moscow will
accommodate Aden's request to accelerate development efforts by increas-
ing its drilling activity and accepting Western technology and equipment.
Under this scenario, South Yemen oil exports could reach 100,000 barrels
per day (b/d) by 1990 and 500,000 b/d by the mid-1990s. Aden's share of
the oil revenues could total nearly $300 million in 1990 and about $2.5 bil-
lion annually by mid-decade.
Oil earnings will ease significantly South Yemen's strained finances and
provide the regime with considerably greater flexibility in policymaking,
but will be inadequate to resolve Aden's deep-seated economic problems.
South Yemen is among the most underdeveloped countries in the world,
and it will continue to rely heavily on remittances from Yemenis working
abroad as well as foreign grants and loans. Noticeable progress in
improving social services, upgrading the country's infrastructure, and
expanding agricultural and industrial production probably will have to wait
at least until the early-to-middle 1990s, when production and oil revenues
should begin to increase substantially.
The regime certainly will try to use growing oil revenues to consolidate its
political power in the wake of the 1986 civil war. It will seek to expand the
control of the South Yemeni Socialist Party over all institutions of the
state?particularly the military, which poses the greatest challenge?and
further into the countryside where the vestiges of tribalism remain
influential. Oil revenues alone, however, will not provide South Yemen
with political stability. We believe that competition for control of the oil
wealth probably will deepen existing political and regional divisions and
intensify Aden's chronic leadership factionalism. At the very least, this will
prompt a leadership reshuffle in the near term.
Oil revenues will complicate relations between South Yemen and its Arab
neighbors, which distrust Aden's intentions and suspect that the current
moderate trend in South Yemen's foreign policy is merely a tactic to obtain
financial assistance. They fear that a South Yemen strengthened by oil
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revenues will again engage in a confrontational policy toward them. North
and South Yemen recently signed a border accord, but they will have
difficulty overcoming their deep historical animosity, and their rivalry will
be further intensified by their race to develop their respective oil resources.
Nevertheless, we believe South Yemen and the neighboring states recog-
nize the advantages of some sort of accommodation and that disputes are
likely to remain localized.
South Yemen is unlikely to alter significantly its relationship with
Moscow?its primary benefactor?as a result of oil developments. Pro-
Soviet hardliners within the regime remain powerful enough to prevent
dramatic change. Nonetheless, the advent of oil revenues will offer Aden
the opportunity for greater flexibility in its foreign policy and may prompt
it to adopt a more nonaligned stance. We believe that the Soviets, as long
as Aden maintains the present good relationship and does not restrict their
access to its port facilities and airbases, will be' unwilling to put that
relationship at risk by working to prevent South Yemen's movement
toward a more balanced foreign policy.
We believe the participation of Western oil companies in South Yemen's
oil development will lead to expanded commercial ties to Western states as
Aden seeks their assistance to develop its economy. Aden also probably will
seek corresponding political ties to Western countries that offer economic
benefits. South Yemen has been wary of dealing with the United States be-
cause of longstanding distrust, ideological differences, and almost certain
Soviet disapproval. Nevertheless, we believe that Aden now sees value in at
least limited diplomatic ties as a means to facilitate access to Western aid
organizations and help balance Soviet influence.
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Contents
Page
Scope Note
111
Summary
South Yemen's Oil Industry: A Status Report
1
South Yemen's Oil Potential
1
Oil-in-Place and Potentially Recoverable Oil
3
Exploration and Drilling Activities
3
Oil Production Possibilities
5
Oil Revenue Projections
6
Domestic Impact of Oil Development
7
Spending Constraints
10
Social Impact
10
Implications for Internal Politics
10
Oil Development and Foreign Policy
12
Oil and Regional Politics
13
Relations With North Yemen
13
Relations With the Soviet Union
14
Implications for the West
16
Opportunities for the United States
17
Appendix
Technical Methodology
19
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South Yemen's Oil Resources:
The Chimera of Wealth
South Yemen's Oil Industry: A Status Report
Fifty years of episodic oil exploration in South Yemen
has only recently met with success. Exploration fo-
cused on the eastern part of the country until the mid-
1980s, when the discovery of North Yemen's Alif
field led to substantial exploration interest in South
Yemen's adjacent Shabwah Governorate. The Soviet
Union began exploring the Shabwah area in 1985 and
discovered oil in late 1986, but this was not an-
nounced until April 1987. By November 1987 the
Soviets had discovered three oilfields in the governor-
ate, and South Yemen announced that the fields
contained about 3.5 billion barrels of oil. We believe
this figure to be an estimate of oil-in-place; the
amount of oil commercially recoverable probably is
closer to 800 million barrels.'
current production from the fields is
only a minuscule 400 barrels per day (b/d), and it is
trucked to the Aden refinery.
Western firms also are participating in South
Yemen's oil development, but they have yet to make a
discovery. According to press reports, a consortium of
Kuwaiti, French, and US firms was awarded a con-
tract to explore part of the East Shabwah Basin last
year. Other oil companies from the United States,
France, and the United Kingdom have signed explora-
tion and production agreements to explore for oil
outside the Shabwah area, according to press reports.
A subsidiary of a US company began drilling opera-
tions in South Yemen in early June 1988.
'South Yemen probably has more than 20 billion barrels of oil-in-
place. Oil-in-place is the estimated total amount of oil in a region's
reservoirs and is a first measure of a region's oil potential. For both
economic and technical reasons, however, most of the oil-in-place
cannot be recovered.
1
South Yemen's Oil Potential
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On the basis of a contract study and our analysis, we
estimate that potentially recoverable oil resources in
South Yemen amount to at least 5 billion barrels.
This represents:
? About the same amount as Egypt's reserves.
? An amount sufficient to support production of
500,000 b/d for more than 20 years.
Our estimate is intentionally conservative because of
the limited geological and geophysical information
available. We believe that South Yemen's potential
recoverable oil resources could be considerably larger
than our estimate because the country's most promis- 25X1
ing oil basins are geologically analogous to adjacent
oil-rich basins in North Yemen.2 Moreover, deposits
of oil and gas probably exist in the newly created
neutral zone along the disputed border between North
and South Yemen that the two recently agreed to
develop jointly.
Analysis of South Yemen's geologic characteristics
indicates the presence of the conditions necessary for
generating and accumulating large quantities of oil.
Source rocks needed to generate the oil are wide-
spread and locally thick. Reservoir rocks have good
porosity and permeability?which will facilitate
production?and the natural seals necessary to keep
oil in the reservoirs are generally good. Like North
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Figure 1
Oil Concessions, Oil Facilities, and Proposed Oil Pipeline in South Yemen
Red
Sea
e
Saudi Arabia
no defined
boundary
SANAA* WI1UNT/EXXOI
WAVE*
oilfield
Yemen
Arab Republic
(North Yemen)
Aden,
?irefine'ty
ELF:AQUITAINE
Djibouti)
DJIBOUTI
Eth.
PED/TECHNO-
EXPORT
.Shabwah CFP- TOTAL/
UNOCAL
io cirsvigefy
Gulf of Aden
Somalia
Secret
PG/YEPC
?
Boundary representation is
nol necessarily authoritative.
People's Democratic
Republic of Yemen
(South Yemen)
CANADIAN OCCIDENTAL
Oman
Zs
ELF Lease holding company
Lease limit
Proposed oil pipeline
Unassigned concession area
ESO Neutral zone for future oil
exploration
7 110 Kilometers
o 150 Miles
rZo.
2
714231 (800500) 8-88
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Yemen, South Yemen has many structures that can
trap oil, some of which could hold several hundred
million barrels of oil.
Oil-in-Place and Potentially Recoverable Oil
The limited extent of exploration and development in
South Yemen makes it difficult to determine the
portion of recoverable oil-in-place. Our estimate of
4-6 million barrels of recoverable oil, therefore, is
based on a combination of the available data and the
typical recovery rates in the region. Oil production
experiences elsewhere in the Arabian Peninsula sug-
gest that South Yemen can expect to produce between
20 and 40 percent of its oil-in-place. Because the
actual proportion depends largely on specific reservoir
conditions and production techniques, our analysis
assumes a conservative recovery efficiency of 20 to 30
percent for South Yemen.
The bulk of South Yemen's oil reserves is located in
Shabwah Province and is being developed by the
Soviet Union. The East Shabwah Basin probably has
the best long-term oil potential in South Yemen, with
more than 3 billion barrels of recoverable oil. The
West Shabwah Basin possibly has more than 2 billion
barrels of recoverable oil. Our analysis suggests that
the two basins are extensions of North Yemen's
Ma'rib-Al Jawf Basin, which is the site of North
Yemen's 150,000-b/d Alif field, and may contain
several billion barrels of recoverable oil.
The Hadhramaut region and the Balhaf Basin also
are promising but on a much smaller scale than the
Shabwah basins. Our analysis indicates that each of
these areas could have more than 300 million barrels
of recoverable oil. Oil companies have explored the
Hadhramaut region since the 1930s, and, although no
fields have been developed, the US Embassy in Sanaa
reports that several Western oil companies believe the
area has good potential. The Balhaf Basin also lacks
producing fields, but industry interest apparently
remains high. Although the Aden-Abyan Basin is
poorly explored, it appears to have only limited oil
potential.
3
Exploration and Drilling Activities
Oil exploration and drilling activity by the Soviet 25X1
Union has proceeded slowly since the initial discovery
in 1986. Since then, the Soviets have drilled only a
half dozen wells in the Shabwah area, an extremely
slow rate by Western standards or in comparison with
the exploration effort under nearly the same condi-
tions in North Yemen. According to the US Embassy
in Sanaa, each of Aden's wells so far has taken three
to nine months to complete as compared with about
30 days for North Yemeni wells, which are being
drilled by a US company. The Embassy also reports
that the Soviets are having operating difficulties at
the few wells that are pumping oil. 25X1
Progress appeared to have picked up in January 1988
when the Soviet Union agreed to develop several
oilfields in the Shabwah area and to construct a 225-
kilometer pipeline to Bi'r 'Ali on the Gulf of Aden.
South Yemen has announced that construction on the
pipeline will begin in the fall of 1988 and is scheduled
to be completed by late next year. The pipeline will be
able to export 50,000 to 100,000 b/d initially, with its
capacity rising eventually to 500,000 b/d.
Aden's oil development program is expected to focus
on expanding the Shabwah fields during the next
several years. According to press reports, Moscow has
committed $200 million through 1990 to finance
development of the oilfields and construction of the
export pipeline. The Soviets plan to develop at least
two of the three fields in northern Shabwah?Amal
and East and West Iyad?during 1988, and are both
delineating the fields and continuing to explore else-
where in northern Shabwah. The US Embassy in
Sanaa reports, however, that the Soviets have sched-
uled to drill only 11 wells this year as compared with
25 production wells drilled in North Yemen the year
before Sanaa started exporting oil. Prospects for
developing commercial fields outside of Shabwah
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Figure 2
Oil Resource Potential by Geologic Basin in North and South Yemen
This map indicates where geoldgic conditions would be favorable to
generating oil, condensate, or gas, and does not necessarily indicate
the presence of hydrocarbons.
0
Saudi Arabia
ncleY
bc'd
/People's Democrat
HADHRAMAU:
Republic of Yemen
(South Yemen)
? .-
. A L',-Wit/F-;Jez T
er g " - ' FF
Shab)niah*,,;) EAST
? HABWAH
AA ASHABWAH
A
Red
Sea
VOLCANIC
ALHAF
Djibouti
Gulf of Aden
DJIBOUTI
*Brr 'Ali
Somalia
Bounoary reprogentation is
not necessarily authoritative.
Oman
V"`"'"
BALHAF
?
Oil
Condensate
Dry gas
Geologic basin
Well site
150 Kilometers
150 Miles
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anytime soon are limited unless drilling activity accel-
erates. In our judgment, these few areas will not
contribute substantially to Aden's oil production until
the mid-1990s at the earliest
The slow pace of Soviet exploration and development
operations has frustrated Aden and has encouraged it
to seek Western participation. According to US Em-
bassy reporting Aden has
complained about the low quality of Soviet work, the
slow pace of drilling, and Moscow's unwillingness to
provide timely progress reports.
a growing number of South Yemeni oil
officials have come to realize that Moscow's oilfield
technology and drilling techniques are inferior to
those of the West and that Western firms will work
more quickly and less expensively than the Soviets.
According to press reports, several Western firms
have been offered concessions in areas adjacent to
Moscow's Shabwah oilfields. The US Embassy in
5
North Yemen reports that Aden recently asked a US
company for expertise in enhanced oil recovery tech-
niques and handling difficult oil reservoirs. Moreover,
the announced oil export pipeline agreement with
Moscow permits the subcontracting of work to non-
Soviet companies.
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Oil Production Possibilities
The pace of development of South Yemen's pro- 25X1
duction and export capacity will depend on the fre-
quency of Soviet drilling and the degree of Western
participation. If the Soviets continue their slow pace 25X1
and reject Western assistance, South Yemen probably 25X1
will not meet the late 1989 pipeline completion date.
Our engineering studies indicate that, at the current
rate of progress, production capacity would reach only
85,000 b/d in 1990 and would not reach a total
production capacity of 500,000 b/d before 1995. 25X1
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The Soviet Union probably will accommodate Aden's
desire to intensify development by increasing its drill-
ing activity and accepting some Western technology
and equipment. According to press reports, Aden and
Moscow agreed in June to speed work on oilfield
development and the export pipeline. Under this
scenario, South Yemen probably could complete by
late 1989 the pipeline, export terminal, and wells and
facilities capable of supporting production of 100,000
b/d. A relatively small, 24-inch-diameter line with
one pump station could be built with an initial
capacity of 100,000 b/d. The pipeline's capacity could
then be increased to 300,000 to 500,000 b/d, at a
small cost, by adding a second pump station. To meet
the late 1989 completion date, however, construction
of processing equipment and export facilities would
have to start by late 1988. Indications that activity is
picking up would include:
? Purchases of large quantities of drilling pipe, well-
heads, and drilling mud.
? Construction of field processing equipment such as
gas-oil separators and connecting flowlines.
? Trenching and pipeline-laying activity on a large
scale.
? Construction of export facilities along the coast near
Bi'r 'Ali including storage tanks or the positioning
of floating storage facilities.
If the 100,000-b/d production level is reached by late
1989, production capacity could be expanded to
slightly more than 125,000 b/d by 1990, and then
increased steadily to 500,000 b/d by 1993, a produc-
tion rate we believe the Shabwah oilfields could
sustain comfortably.
Oil Revenue Projections
South Yemen's oil earnings will be modest during the
first two years of oil exports. Although we have little
information about the relative allocation of oil be-
tween Moscow and Aden, industry and US Embassy
reporting suggest the Soviet Union will receive up to
40 percent of the oil to pay for exploration, develop-
ment, and production costs, and at least 20 percent of
the remaining oil as its share of the profits. Only one-
third of the oil will be available for export after
royalties and domestic oil consumption are taken into
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Figure 4
South Yemen: Oil Production Capacity
Possibilities, 1989-95
Thousand barrels per day
Scenario A assumes the Soviet Union increases
its drilling activity and Western technology and
equipment is used.
Scenario B assumes the Soviet Union continues
its slow drilling pace and Western technology and
equipment is not used.
600
0 1989
4th quarter.
90 91 92
93
94
95
318705.88
account. Aden's share probably will increase steadily
to about 50 percent by 1993 as the amount of oil paid
to cover Soviet costs declines.
If Aden's share of oil exports averages 43,000 b/d in
1990 and 104,000 b/d in 1991, the government would
earn about $283 million and $721 million in those
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Figure 5
South Yemen: Oil Revenue Scenarios,
1989-95 a
Billion US $
Scenario A assumes the Soviet Union increases
its drilling activity and Western technology and
equipment is used.
Scenario B assumes the Soviet Union continues
its slow drilling pace and Western technology and
equipment is not used.
a The government's share of oil revenues.
b4th quarter.
318706-88
years, respectively. Government revenues could total
nearly $2.5 billion annually if production reaches
500,000 b/d in 1993.
Domestic Impact of Oil Development
The oil find is a boon to South Yemen, which is
heavily dependent on foreign goods and financing.
Increased oil revenues will ease Aden's tight financial
position and will also give the regime the resources to
begin reversing the deep spending cuts of the past few
years that have stifled economic development. The
government recently announced it intends to reinvest
most of its additional revenues into the oil sector?
which Aden estimates at $1-2 billion over the next 12
years. But senior officials also have indicated to the
International Monetary Fund that South Yemen's
economic priorities include upgrading the country's
basic infrastructure?transportation, power, water,
sanitation, and communications networks?and ex-
panding industrial and agricultural production. The
government probably will also increase efforts to
improve the social welfare, education, and health care
systems.
Although the need for development is greater outside
Aden, immediate efforts are likely to focus on repair-
ing the capital, which was damaged during the Janu-
ary 1986 coup. As oil revenues increase, the regime is
likely to devote more resources to rural development,
but South Yemen's dispersed population Will hinder
this effort.
Increasing the output and productivity of the industri-
al and agricultural sectors will require a large invest-
ment of capital and time. Aden will probably want to
concentrate new manufacturing investment on food
processing, construction materials, and light consum-
er goods and will increase imports of machinery,
equipment, and raw materials. In addition, it has
stated that it wants to increase wages and benefits to
boost worker incentives and morale.
Aden is likely to take a more focused approach in
agricultural matters and try to increase self-sufficien-
cy in certain crops, such as fruits and vegetables, as
well as meat and dairy products. Part of the new
investment probably will be devoted to irrigation
schemes and dam construction to increase the amount 25X1
of cultivable land and to supplement low rainfall. The
regime is likely to increase imports of fertilizers,
tractors, and other farm machinery to improve pro-
ductivity. The fishing sector probably will receive
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South Yemen's Economy: Barely Getting By
South Yemen is among the most underdeveloped
countries in the world. Except for oil, the country is
poorly endowed with natural resources, and poten-
tially cultivable land is less than 5 percent of the
country's total area. Although agriculture accounts
for nearly 15 percent of gross domestic product and
employs about 50 percent of the work force, South
Yemen has to import about two-thirds of its food
requirements. The country suffers from a manpower
shortage, primarily because about 20 percent of its
total labor force works abroad, according to the
International Monetary Fund.
A narrow resource base and a largely unskilled labor
force have severely hampered the development of
South Yemen's productive capacity. As a result, the
economy relies heavily on imports. Since 1982, im-
ports have averaged $650 million annually as com-
pared with only $43 million per year in exports. Most
of the gap has been financed by remittances from
Yemenis working abroad?primarily in Saudi Ara-
bia?and foreign grants and loans from the Soviet
Bloc, China, the Arab Gulf states, and multilateral
organizations.
The economy has been battered, moreover, by the
drop in world oil prices during the past five years:
? The significant decline in economic activity in the
Gulf oil-producing states has reduced the flow of
worker remittances to South Yemen as thousands
of Yemenis have been dismissed from their jobs and
those remaining now receive lower wages. Workers'
remittances in 1987?totaling about $287 mil-
lion?were down almost 40 percent from their 1984
peak.
? Official grants from foreign governments fell to an
estimated $41 million in 1987, compared with
1982's peak of $125 million.
? Activity at the Aden refinery?South Yemen's larg-
est industrial establishment?and the Aden port
has declined significantly, costing the regime badly
needed foreign exchange and contributing to a
current account deficit that has averaged $607
million annually since 1983.
? Prices of imports have risen significantly since 1986
because of the depreciation of the South Yemeni
dinar against the currencies of Aden's main trading
partners.
? Import duties and profits from public-sector com-
panies have dropped by one-third since 1985 be-
cause of lower imports and the decline in domestic
economic activity, exacerbating the budget deficit
that has averaged $375 million since 1985.
South Yemen has dramatically increased its interna-
tional and domestic borrowing to cope with the
decline in foreign exchange earnings. External debt
has increased about 150 percent since 1980 to ap-
proximately $1.8 billion. Central Bank claims on the
government have risen from $648 million in 1982 to
$1.7 billion in 1987. Despite the increased borrowing,
South Yemen since 1982 has had to draw down its
foreign reserves 43 percent to $223 million?four
months' worth of imports?to help cover the deficit.
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Figure 6
South Yemen: Economic Trends, 1980-87
Note scale change
Foreign Exchange Receipts Development Expenditures Imports of Goods
Million US $ Million US $ Million US $
I-1 Exports
ri Official foreign grants
El Worker remittances
500
990
800
400
700
?
700
600
600
?7
300
500
500
400
400
200
300
300
200
100
200
100
100
0 1980 81 82 83 84 85 86 87 0 1980 81 82 83 84 85 86 ? 0 1980 81 82 83 84 85 86' 87'
Yearend Foreign Assets
Million US $
400
380
360
340
320
300
280
260
240
220
200
?
II
180
1980 81 82
83
84
'Estimated.
\
\
I V
85 86 87
Budget Deficits
Million US $
500
100
0
1980
81 82 83 84 85 86 87
Real GNP
Billion US $
1.5
1.4
1.3
1.2
1.1
1.0
0.9
0.8
0.7
0.6
1
I
1
1
1
0.5
1982 83
84
85
86
87
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much attention because South Yemen's lengthy coast
and wide variety of exploitable fish resources give this
sector good potential as a source of foreign exchange.
Spending Constraints
We believe that the projected amount of oil revenues,
along with deep-seated domestic problems, will pre-
vent the regime from meeting many of its develop-
ment goals. Aden will have to wait until the mid-
1990s?when oil revenues could approach $2.5 billion
annually?before it gains any degree of financial
independence and the ability to noticeably boost its
economic development:
? The return of some of South Yemen's 100,000
overseas workers hoping to share in the country's oil
wealth will add to the regime's economic burden.
The expansion of the oil industry probably will
provide only limited direct-employment opportuni-
ties, and new jobs in other sectors of the economy?
such as construction?will take time to develop.
? Poor economic management, a shortage of capable
technocrats, and the structural rigidity and heavy
bureaucracy of South Yemen's centrally planned
economy will diminish the benefits of additional
financial resources.
? As factions in the regime jockey to control the oil
wealth, economic policy makers will probably be
increasingly pressured to accommodate factional
interests, rather than the country's long-term eco-
nomic development.
? Foreign donors may reduce aid to South Yemen as
oil revenues grow; creditors probably will press
Aden to make payments on nearly $2 billion of
military and civilian debt, largely Soviet, as well as
to make lar er down .a ments for an new ?ur-
chases.
Secret
Social Impact
Although we believe that the Aden regime faces no
significant threat of domestic rebellion, the leadership
is concerned about growing popular discontent fueled
by economic hardships
For example, the government followed
up the discovery of oil with a publicity campaign to
announce that economic hardships would ease once oil
exports begin.
Despite the promise, the South Yemeni populace is
likely to be disappointed by the lack of immediate
benefits from the country's oil wealth. Oil revenues
will allow the regime to increase imports, but we
believe living standards will improve only slowly.
Meanwhile, the government will have to deal with the
increased expectations of its citizens. We believe that
Aden will not hesitate to employ additional repressive
measures to maintain control, although it would pre-
fer to ease some of the austerity measures that have
contributed to the erosion of South Yemeni living
standards, already among the lowest in the world.
Implications for Internal Politics
More than two years after the bloody civil war that
toppled President Ali Nasir, the political situation in
South Yemen remains fluid as the post-civil-war
leadership struggle persists. Ideological differences,
personal rivalries, and tribal antagonisms continue to
threaten the jerry-rigged ruling coalition, forcing the
regime to publicly deny allegations of a power strug-
gle. Despite numerous indications of Politburo differ-
ences over fundamental issues, however, the factions
apparently are enjoying a temporary coincidence of
interest over the development of oil resources, proba-
bly because all recognize Aden's desperate need for
new revenues.
The Yemeni Socialist Party?the country's nominal
ruling party?will try to use the new wealth to con-
solidate its political control. It probably will give top
priority to expanding its authority over all institutions
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Figure 7
Selected Demographic and Social Indicators
South Yemen is likely to use its new oil wealth to promote self-
sufficiency in certain crops?such as fruit?and livestock products.
Oil revenue will enable South Yemen to devote more resources to
rural development, such as improving rudimentary education
systems.
Area: 112,075 square miles
(about the size of Nevada)
Population: 2.1 million (1985)
Population 2.6 percent
growth rate:
Urban 37 percent
population:
Religion: 91 percent Sunni Muslim
9 percent Christian and Hindu
Official Arabic, but English widely
language: understood
Literacy: 39 percent
Life 46 years
expectancy:
Infant 145 per 1.000
mortality rate:
GNP per $480 (1986)
capita:
Oil revenues will accelerate the development of South Yemen's
fishing sector, a potentially important source of foreign exchange.
Life expectancy, currently at 46, is likely
to improve with oil development.
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of the state, particularly the South Yemeni military,
which is its greatest political rival. We expect the
party to try to conciliate the military with better pay
and benefits and more equipment and training. At the
same time, it will probably seek to upgrade its own
paramilitary force as a counterweight to the military's
monopoly on power. Oil wealth also will allow the
party to extend its influence into the countryside,
where it is weak and still competes with the vestiges of
tribalism. For example, Aden is likely to increase the
budgets of local party organizations, particularly
funding for development projects, so that they can
better compete with the tribal welfare system still in
place in many areas of the country. Aden probably
also will increase direct payments to local and tribal
leaders as inducements for political support.
Despite these efforts, it is our judgment that oil
wealth will deepen existing political and regional
divisions and intensify chronic leadership problems.
Competition for top jobs?made more attractive by
the prospect of oil revenues?will increase, and the
regime's administrative style, which tends to rely on
trusted personal agents bypassing both party and state
bureaucracies, is likely to lead to increased corruption
and contribute to the mismanagement of oil revenues.
Aden's political elite?who, despite their professed
commitment to socialism, still draw upon tribal and
regional loyalties as readymade bases of power?will
compete for funds for their traditional constituencies.
The present alignment among the senior South Yeme-
ni leaders, although inherently unstable, may endure
for the near term. The lessons learned from the bloody
civil war in January 1986 probably will act as a
deterrent to a premature bid for power by any of the
leaders. Nonetheless, as time goes on, we believe the
underlying political instability will lead to a reshuffle
of leaders, further hindering the leadership's ability to
cope with economic problems. A more radical regime
has an outside chance of again coming to power, but,
in our view, the trend in South Yemeni domestic
politics appears to be toward a more pragmatic, less
dogmatic leadership. Future South Yemeni regimes
probably will not be any more stable than their
predecessors, however, because of continuing tribal
and regional rivalries.
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The Role of Factionalism in Domestic Politics
Factionalism is an endemic feature of South Yemeni
political life, and it will continue to heavily influence
domestic politics and foreign policy. All South Yeme-
ni factions claim adherence to the principles of
Marxism-Leninism, but their precise interpretations
and their degree of commitment differ. The ideologi-
cal spectrum ranges among strict ideologues, prag-
matic socialists, and leftist-leaning nationalists. The
influence of tribal and regional politics also blurs
factional lines. Those running the country tend to
view their own tribes as readymade power bases to be
used for personal political advancement. Recruitment
for key institutions such as national party organs, the
armed forces, the militia, and intelligence and securi-
ty services invariably takes on a tribal dimension.
Tribal and regional divisions will probably continue
to play an important role in South Yemeni politics. In
addition to regional affiliations, personal relation-
ships also play a key role. Leading personalities often
shift back and forth between factional groupings,
depending on the issue.
Oil Development and Foreign Policy
The current regime is continuing the more pragmatic
foreign policy of its predecessor, primarily because of
Aden's desperate need for economic and technical
assistance. The regime gradually has been improving
relations with moderate Arab and West European
states?including Egypt, Saudi Arabia, Norway, and
the United Kingdom?to maximize its access to for-
eign assistance and to balance its ties to the Soviet
Union.
Progress thus far has been modest, but oil wealth
could prompt a more permanent restructuring of
South Yemen's foreign policy to one that more closely
resembles the nonaligned foreign policy of North
Yemen. The Aden regime probably realizes that the
political price tag for increased Arab and Western
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assistance is its continued moderation in its foreign
policy. We do not believe, primarily because Aden's
leaders perceive no ready alternative to Soviet or East
European assistance at current levels, that South
Yemen's oil will eliminate its dependence on Bloc aid
or significantly weaken Soviet influence over its af-
fairs. The Aden regime, moreover, is convinced that
its survival is dependent on Soviet security and mili-
tary assistance.
South Yemen's foreign policy remains closely tied to
the shifts in its internal politics. In the unlikely event
that a more radical leadership takes hold, oil wealth
would provide the regime with the means to try once
again to export South Yemen's revolution to regional
states, reestablish closer ties to radical groups in-
volved in terrorism, and increase support to regional
insurgent groups that it has backed in the past.
internal politics and the recurrence of border disputes
that inevitably will flare up, but setbacks are likely to
prove temporary. We believe Aden's neighbors recog-
nize the advantages of some sort of accommodation.
According to US Embassy reporting, the Gulf Arabs
view closer ties to Aden as an opportunity to influence
its domestic and foreign policies, despite their suspi-
cion that Aden's moderation is a tactic to obtain
financial assistance. South Yemen and Oman early
this spring exchanged resident ambassadors, and
Aden and
Riyadh are gradually expanding economic and politi-
cal contacts. Kuwait has long provided some aid to
Aden and is heavily involved in exploring for oil in
South Yemen and sends about 20,000 b/d of oil to be
refined at the Aden refinery.
Oil and Regional Politics
Oil may complicate South Yemen's relations with its
more conservative neighbors, which already distrust
Aden's intentions because of its socialist orientation.
In our view, the moderate Arab Gulf states probably
fear that a South Yemen strengthened by oil revenues
may again engage in a confrontational foreign policy
toward its neighbors, undermining the stability of the
peninsula. Their nervousness will be heightened in the
likely event that South Yemen uses its oil wealth to
buy more arms even if its intention is to improve its
ability to defend its borders and its oil production and
export facilities. Although the Aden regime professes
moderation, border clashes with North Yemen and
Oman within the last year and the recent sentencing
to death in absentia of former President Ali Nasir
belie this assertion and raise questions about the
regime's ability to control its more hardline factions.
Furthermore, the uncertain outcome of the occasion-
ally violent leadership struggles also lends a degree of
unpredictability to the Aden leadership's future politi-
cal orientation and intentions.
It is our judgment, however, that Aden will continue
to pursue its policy of Arab rapprochement, motivated
by the realization that oil will not provide immediate
financial independence. Aden's continued moderation
will be subject to the vicissitudes of South Yemeni
13
Relations With North Yemen
Relations between the two Yemens can best be char-
acterized as malevolently ambivalent and are unlikely
to change in the foreseeable future regardless of the
amount of new oil revenues. On balance, we believe
the discovery of oil in both Yemens and the presence
of oil in the disputed triborder area adjoining North
and South Yemen and Saudi Arabia is more likely to
spawn conflict than cooperation. Aden and Sanaa
recently announced they had drawn an accord to turn
the disputed area into a neutral zone for joint develop-
ment. Nevertheless, we believe the two sides will have
difficulty overcoming a tradition of distrust to make
this a permanent agreement.
South Yemen, the financially weaker of the two, will
have particular difficulty sustaining amicable rela-
tions with Sanaa not only because of its longstanding
animosity toward the north, but also because of the
strong rivalry between the two for Gulf economic aid
and Soviet military assistance. This rivalry probably
will intensify as each country races to develop and
protect its oilfields. Major hostilities are unlikely,
however, because of the shared financial interest in
exploiting the neutral zone. The mutual realization
that each has the capability to damage the other's oil
installations also may act as a deterrent.
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The Yemeni Border Dispute: No Easy Solution
The border between North and South Yemen has
never been fully defined and remains in dispute. The
dividing line between the two countries stems largely
from a 1902 boundary settlement, but the British-
Turkish demarcation team, tired of harassment by
tribal elements, left the area with their work unfin-
ished. A 1914 treaty established the "violet line" and
extended the border into the Rub' al Khali. In 1955
the British unilaterally imposed a boundary from
south of Ma'rib to Jabal Thaniyah and east, but the
then ruling Imam of North Yemen refused to recog-
nize it. The Yemens have had two wars over the
border, in 1972 and 1979, and border clashes are
frequent.
The presence of oil deposits along their disputed
border has raised the stakes for Aden and Sanaa. To
defuse tensions over conflicting oil claims that threat-
ened a repeat of the border wars, they earlier this
year agreed to turn 2,200 square kilometers of the
disputed area into a neutral zone that would be
developed jointly, according to press reports. It took
six months of intense, high-level negotiations?which
were frequently interrupted by armed clashes?before
the two sides hammered out an agreement that at
least temporarily papers over their differences. Ac-
cording to the US Embassy in Sanaa, the Soviet
Union apparently used its leverage as the major arms
supplier to both countries to broker the border settle-
ment and gain the inside track to explore and develop
the neutral zone.
We doubt that the accord will be long lasting.
According to the US Embassy in Sanaa
both sides have withdrawn their forces
from the neutral zone, but remain within easy strik-
ing distance. Moreover, both countries' politically
powerful militaries are unhappy with the terms of the
accord according to US Embassy and
2nd could hinder its implementation.
Another potential roadblock is Saudi Arabia's claim
along the undemarcated eastern border with the
Yemens that includes all of the newly established
neutral zone. Riyadh so far has not taken issue with
the accord, but we believe that it will press its claim
if it perceives that cooperation between the two
Yemens threatens Saudi hegemony on the peninsula.
Relations With the Soviet Union
The Soviet Union is South Yemen's main benefactor,
providing virtually all of Aden's military aid and a
large part of its economic assistance?which totals
several hundred million dollars annually. Since 1967,
South Yemen has looked to Moscow for protection
and arms and, in return, has given strong support to
Moscow's regional objectives. The close ties between
the two countries were strengthened in October 1979
with the signing of a 20-year treaty of friendship and
cooperation. The Soviet presence has allowed Moscow
to influence the course of Aden's development and
to gain strategic assets in South Yemen?Soviet
Secret
maritime reconnaissance aircraft are stationed at
Aden, and the Soviets use South Yemeni port facili-
ties to supplement logistic support for their Indian
Ocean squadron.
Nonetheless,
South Yemen is troubled by many aspects of its
client relationship with the Soviet Union, especially
the Soviet role in exploiting South Yemen's oil. The
majority of South Yemenis resent the substantial
14
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Figure 8
Military Buildup and Border Disputes in the Ma'rib-Shabwah Oil Region
Saudi Arabia
RUB'
o 1
I
I
I!
' IL.
\\ /37.44 f i evillIV? * L
ThJaanbiya al Ilik
/
\ Ma'rib ,,,Neutral zone .......-
....--
* \ ?4,-for future oil...., -----
*Shabwah
\ ' * //exploration,-
At
SANAA
Yemen Arab Republic
e
LAI
? )
//Ata
)
People's Democratic
" noteb,.:9 Republic of Yemen
(South Yemen)
GZ,
Perim !elan
P.O.R.Y.
Gulf of Aden
representation is
necessarily
O 50omMem
O 50 Miles
15
North South
Yemeni Yemeni
V V Infantry brigade
? 141, Mechanized infantry brigade
..14 ? Artillery brigade
mew? ? Armored brigade
9 _ Airborne brigade
eE/ Military airfield
Ar
? SA-9 missile site
I
SA-2/SA-3 missile site
it * Forward deployment area
Figureindicafesnumberoti",its.
- 1955 British Declaration
(Modified Riyadh Line)
? ? Maximum Saudi Arabian
border claim (approximate)
Violet Line, 1914
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Figure 9. Yemeni Socialist Party Secretary
meets with Soviet leader Gorbachev in February
1987. Despite frictions, South Yemen is unlikely
to significantly alter its relationship with Mos-
cow because of its new oil wealth.
Soviet presence and the disparity between the life-
styles of resident Soviets and themselves. Many South
Yemeni officials consider Soviet financial assistance
insufficient for Aden's development needs and regard
Moscow's terms as politically stringent. They also are
increasingly concerned about growing Soviet med-
dling in South Yemeni domestic affairs; are weary of
Soviet performance, especially in the oil sector; and
are upset with the large share of oil production that
Moscow will receive initially. They believe that Soviet
foot-dragging is intentional and reflects Moscow's
desire to maintain Aden's dependence on Soviet lar-
gess.
The South Yemenis are exerting a growing degree of
independence, despite Moscow's strong influence.
Aden's quest for greater Western involvement in its
oil development probably has drawn protests from the
Soviets.r
/Aden
continues to stall Moscow's longstanding request for
formal basing rights.
In our view, a South Yemen strengthened by oil
eventually may be even less inclined to support Soviet
policy when it conflicts directly with South Yemen's
Secret
national or Arab interests. Aden is especially likely to
push for greater independence if it believes that
Moscow is using its economic and military leverage to
dictate the terms of South Yemen's oil development
and gain a greater percentage of future oil revenues.
The Aden regime already has frequently felt the need
to assert publicly that any oil found belongs to the
government.
Despite these frictions, South Yemen is unlikely to
significantly alter its relationship with Moscow as
long as it is convinced it needs Soviet security, oil, and
financial assistance. Furthermore, any South Yemeni
leader whose actions are perceived to seriously jeopar-
dize that aid probably would face strong internal
opposition. For its part, we expect Moscow will moni-
tor Aden to ensure that it does not pursue a foreign
policy that would jeopardize Soviet political and
strategic regional interests. In our view, as long as the
South Yemeni regime maintains good relations with
the Soviet Union and does not further restrict Mos-
cow's access to South Yemen's port facilities and
airbases, Moscow will tolerate South Yemen's expan-
sion of economic and political ties to the moderate
Arabs and the West.
Implications for the West
Aden's immediate objective is to acquire advanced
Western oilfield technology and equipment to expand
its oil industry more rapidly than can the Soviets.
Over the longer term, we believe Aden will seek
Western equipment, technology, and financial assis-
tance to develop other sectors of its economy. To
attract such aid and improve economic performance,
it may accelerate its sluggish efforts to liberalize the
economy and loosen restrictions on foreign invest-
ment. In addition, it probably will support the devel-
opment of commercial and political ties to Western
countries that offer economic assistance.
As South Yemen's oil revenues grow, the regime will
have greater financial flexibility to diversify its mili-
tary and civilian trade. Aden's interest in expanding
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Non-Soviet Participation in South Yemen's
Oil Development
Although the Soviet Union is the dominant player in
South Yemen's oil development, the participation of
Western and other oil companies is growing:
? According to press reports, France's CFP-Total oil
company signed a six-year production-sharing
agreement last year to explore and develop a
16,000-square-kilometer area in eastern Shabwah
Province contiguous to an area under exploration
by the Soviet Union. CFP-Total subsequently sold
a 40-percent stake in the concession to a US oil
company, Union Oil of California, and a 20-percent
stake to the Kuwait Petroleum Company.
? Another French oil company, Elf-Aquitaine, in
January 1987 obtained a six-year production-shar-
ing concession for over 19,000 square kilometers of
onshore and offshore areas in the AdenlAbyan area.
Elf-Aquitaine then sold an interest in the conces-
sion to two British oil companies, according to press
reports.
? Kuwait's Independent Petroleum Group (IPG) has
onshore and offshore concessions that include part
of the Balhaf Basin. The Yemen Exploration Petro-
leum Company (YEPC), an affiliate of Hunt Inter-
national Petroleum Company, has a 50-percent
interest in the concession, according to press re-
ports. Drilling began in June 1988.
? Canadian Occidental Petroleum, Ltd., a subsidiary
of a US oil company, and Lebanon's Consolidated
Contractors Company acquired a 36,000-square-
kilometer concession in the southern part of the
Hadhramaut region in April 1987. This concession
was previously held by a group of Brazilian, Span-
ish, and British companies, according to press
reports.
? Three US oil companies?Hunt International Pe-
troleum, Amoco, and Texaco?have expressed in-
terest in obtaining concessions in areas adjacent to
the Soviet-discovered fields. Hunt International is
working through its YEPC subsidiary to negotiate
an agreement with Aden. Amoco, which has been
pursuing a concession in South Yemen since 1984,
has seven applications for review and is most?
interested in an area north of the Soviets' Shabwah
concession, according to the US Embassy in Sanaa.
its economic relations with the West has been con-
strained by its preoccupation with political infighting
and its reliance on Soviet generosity.
17
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Opportunities for the United States
The participation of US oil companies in South
Yemen's oil development, although limited, probably 25X1
will encourage Aden to increase economic and politi- 25X1
cal contacts with Washington. The rapid development
of North Yemen's oil resources by US companies
probably has impressed the South Yemeni leadership
and made it less reluctant to accept US assistance.
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Aden's leaders probably see utility in at least low-level
political ties to the United States. Aden probably
would be receptive to an overture from Washington or
may even tentatively approach the United States if it
believes that renewed relations would bring economic
benefits, facilitate' access to Western aid organiza-
tions, and provide it with a psychological advantage in
its dealings with Moscow. In our view, however, Aden
would not be receptive to a US overture if its leaders
believe they have to make significant political conces-
sions to obtain renewed relations.
In any event, we believe that South Yemen will be
?cautious in its dealings with the United States be-
cause of more than two decades of distrust and sharp
ideological differences. Aden's leaders probably be-
lieve it would be more difficult for South Yemen to
sustain relations with the United States than with
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West European countries because of a wide range of
separate interests. South Yemen is particularly hostile
to the US military relationship with Oman and may
view a resumption of US-Omani joint military exer-
cises as a threat to its interests. Moreover, we believe
many in the Aden leadership are not convinced that
the political risks of renewed ties to the United States
are outweighed by any likely benefits. They do not
believe that Washington would be willing to offer
South Yemen what it wants the most?arms and
large amounts of financial aid. These same officials
are also concerned that hastily established ties might
worsen factional strife, perhaps provoking a violent
move by regime hardliners against the more pragmat-
ic factions advocating the restoration of relations.
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Appendix
Technical Methodology
South Yemen's petroleum basins are still poorly ex-
plored, making it difficult to assess their petroleum
potential. Consequently, our analysis of South Ye-
men's petroleum potential relies heavily on geochemi-
cal theory?which provides a basis for analyzing the
oil and gas potential in areas of sparse geologic and
geophysical data?and contract studies that estimate
the quantity of recoverable oil and gas resources
through the use of photogeology and industry-
standard methods of subsurface geologic analysis.
Source Rock Assessment
The critical portion of our methodology is the geo-
chemical analysis of the petroleum source rocks,
which are commonly organic-rich marine shales or
limestones. A geochemical analysis provides an esti-
mate of both the type (oil, gas, or condensate) and
quantity of hydrocarbons that will be generated and
expelled from the source rocks. When the source rocks
are buried by younger sediments, heat decomposes the
organic matter to petroleum. Oil usually forms first,
followed by gas, as temperature increases. Therefore,
if the source rock contains a high organic carbon
content, substantial quantities of hydrocarbons can be
generated under appropriate time and temperature
conditions.
We have little data on the organic carbon content of
source rocks in South Yemen, but we are reasonably
confident about our estimates of carbon content. Our
estimates are based on analogy to geologically similar
basins and rock types in the region. The geologic
history of the area is known well enough to determine
the thermal history of the basins. Moreover, because
of the conservative assumptions used to estimate the
organic carbon content, we believe that the actual
amount of petroleum generated from the source rocks
is not likely to be less than the amount we have
estimated.
19
The most important source rocks in South Yemen are
the marine shales and limestones in the East and
West Shabwah, Balhaf, and Hadhramaut Basins, and
possibly the Aden/Abyan Basin. The relatively high
estimated organic carbon content and moderate tem-
perature history in the East Shabwah Basin suggest
that the basin contains large amounts of oil. The West
Shabwah Basin also has a high estimated organic
carbon content, but, because its temperature is higher,
the basin probably contains less oil than the East
Shabwah Basin. The Balhaf and Hadhramaut Basins
are less promising than the Shabwah Basins because
of thinner source rocks in the Balhaf Basin and
possibly insufficient heating for oil generation in the
Hadhramaut Basin. The Aden/Abyan Basin probably
has the least petroleum potential of South Yemen's
basins because source rocks probably are thin and
excessive heat could have partially decomposed any
petroleum that was generated.
Petroleum Accumulation and Extraction
Only a small portion of the petroleum generated from
the source rock is trapped and available for recovery.
Therefore, we reduce the estimated amount of gener-
ated hydrocarbons by an accumulation factor to
account for losses during migration into the reservoir
rocks and subsequent trapping and accumulation.
This factor depends on the geologic history of an area
and the likelihood that reservoir rocks and traps are
present to hold the petroleum. A recovery factor?
which depends mainly on reservoir conditions and
production practices?is then applied to the trapped,
or "in-place," petroleum to yield an estimate of the
recoverable oil and gas.
We believe that our estimates for the accumulation
and recovery factors are reasonable. The geologic
history of South Yemen is well known, and reservoir
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rocks are common in the basins. The recovery factors
are based on production histories elsewhere in the
Arabian Peninsula. These histories indicate that
South Yemen can expect to recover between 20 and
40 percent of its oil-in-place, but our calculations used
a more conservative value of approximately 25 per-
cent for the recovery factor.
Our analysis consistently uses conservative-to-
moderate factors, and we are confident about the
'general magnitude of the estimated recoverable oil.
Indeed, our conservative approach suggests that
South Yemen could have substantially more recover-
able oil and gas than predicted by our estimate.
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Declassified in Part - Sanitized Copy Approved for Release 2012/11/01: CIA-RDP89501450R000500500001-7