Yemen: An Overview

Yemen’s Constitutional and Political Landscape: Legal Uncertainty Amid Fragmentation

Introduction

Yemen today presents one of the most complex governance environments in the world. For clients, investors and legal practitioners dealing with Yemeni counterparties, the interplay of constitutional deviation, political fragmentation and economic deterioration creates significant challenges. Since 2011, Yemen has arguably drifted away from the formal constitutional order towards transitional mechanisms and political settlements. While these arrangements are arguably politically legitimised, they continue to lack a firm constitutional foundation.

This article outlines the current economic, legal and political conditions in Yemen, highlights recent trends, and considers the potential hurdles facing clients, along with suggesting practical steps to mitigate them.

Current economic conditions

Yemen remains in the grip of the world’s worst humanitarian crisis, compounded by severe economic decline and institutional failure, with the following examples.

• Currency instability persists despite Saudi injections of financial support. The Yemeni rial remains volatile, complicating pricing, payments and investment decisions.
• The Central Bank of Yemen in Aden has been accused of corruption and mismanagement, with the UN Panel of Experts (2021) documenting the diversion of USD423 million from Saudi deposits through preferential currency allocations to select traders.
• In resource-rich governorates such as Hadramaut, Marib and Shabwah, revenues are increasingly retained locally rather than deposited with the central treasury. This de facto fiscal decentralisation operates outside the law and arguably weakens state cohesion.
• For clients, this creates heightened risk in payments and transfers, making escrow arrangements and offshore banking essential.

Legal and political trends

Constitutional deviation and political legitimisation

The 1991 Constitution (as amended) remains in force, but both the Presidential Leadership Council (PLC) in Aden and the Supreme Political Council (SPC) in Sana’a may be perceived to operate outside constitutional procedures.

This deviation was arguably politically legitimised through:

• the GCC Initiative (2011), which allowed the transfer of power outside Article 115’s requirements;
• the National Dialogue Conference (2013–2014), which proposed a six-region federal system not contemplated by the Constitution; and
• the formation of the PLC in 2022, structured and announced in Riyadh under Saudi and GCC sponsorship and recognised by the UN.

This trajectory arguably reflects a broader trend in Yemen: political agreements being substituted for constitutional mechanisms, with international endorsement.

Fragmented governance

Although internationally recognised, the PLC is internally divided, especially between Southern Transitional Council (STC) factions backed by the UAE and other PLC members. The SPC governs most of Yemen’s population in the north and west, administering ministries and courts under Houthi control. In Hadramaut, Marib, Aden and Shabwah, governors act as autonomous “heads of state”, managing revenues without central oversight.

Judiciary and rule of law

Yemen’s judiciary operates inconsistently and is vulnerable to corruption and political interference. In Sana’a, the Houthis have restricted prosecutorial authority in ways that contradict Yemen’s Civil Code. In Aden, courts operate sporadically, with foreign investors often facing biased judgments and asset seizures. For clients, domestic litigation is arguably too high-risk, reinforcing the need for foreign governing law and international arbitration clauses.

Legislative and regulatory developments

Yemen has not enacted effective national legislation since the conflict began. Both Aden and Sana’a parliaments claim legitimacy but lack quorum under constitutional rules.

New laws issued in Sana’a by the SPC-controlled legislature are recognised only within Houthi-controlled territories. The Aden parliament has been largely dormant.

The result is:

• arguably no unified legal framework;
• uncertainty of enforceability; and
• reliance on political agreements rather than statutory law to govern business and humanitarian operations.

For clients, this means regulatory due diligence must be conducted on a territorial basis to determine which authority controls the relevant area.

Potential hurdles and how to overcome them

• Enforceability of contracts
  • Risk: courts lack independence and may favour domestic claimants.
  • Solution: use foreign law and international arbitration (London, Paris, Dubai).
• Financial transactions
  • Risk: currency volatility, corruption and dual central bank structures.
  • Solution: use escrow accounts abroad; avoid reliance on Yemeni banks for large transfers.
• Regulatory and licensing risks
  • Risk: conflicting authority between Aden and Sana’a governments.
  • Solution: undertake territorial due diligence before licensing or contracting.
• Humanitarian and compliance risks
  • Risk: diversion of aid and exposure to sanctions.
  • Solution: insert anti-corruption and compliance safeguards in contracts.

Conclusion

For clients and practitioners, Yemen represents a jurisdiction where the constitutional order has arguably been eclipsed by political settlements. While these are possibly politically legitimised, they lack firm constitutional grounding. The result is a governance system characterised by fragmentation, overlapping authorities and widespread corruption.

Navigating this environment requires contractual protections and international safeguards:

• always use foreign law and arbitration;
• rely on escrow and offshore banking;
• conduct territorial due diligence; and
• continuously monitor UN reports and sanctions lists.

Until Yemen undergoes meaningful institutional reform and a consensus-based settlement, its legal and commercial environment will arguably remain precarious. Clients must therefore approach the country with heightened caution, robust contractual frameworks and reliance on international mechanisms.