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German Legal Expertise in the Middle East since 1981

Oil as an important sector in Yemen’s Economic

Guiding Principles

Oil occupies a leading position among the rest of the sectors of economic activity, contributing to 30 % of GDP and 70 % of total state revenues, and the most important product connecting Yemen to the outside world, which constitute 90 % of Yemen’s exports abroad.

A. Historic Background 1

The Ministry of Oil and Minerals website mentioned that the exploration and drilling for oil in Yemen goes back to the thirties of the last century and particularly in 1938 when Iraq Oil Company surveys seismic in some regions of Yemen.
In the summer of 1984, the U.S. company Hunt announced the first commercial discovery in Yemen (Gaza, “18” ​​Marib / Jawf), where the process of development has been done in the construction of surface facilities and the establishment of the pipeline to the Red Sea.
In 1986 and for the first time, the launch of production and export of oil in Yemen from the Gaza (18) Marib / Al-Jouf took place.
Other oil discoveries have been detected throughout many years in different parts of Yemen by many foreign companies especially after Yemen’s unity in May 22, 1990.

B. Oil Importance in the National Economy

A report issued by the Yemen Government on 26 June 2011, mentioning that facts and scientific data confirmed that the future of Yemen’s oil is a promising future

Furthermore the report said that oil occupies a leading position among the rest of the sectors of economic activity, contributing to 30 % of the GDP and 70 % of the total state revenues. Meaning, oil is the most important product connecting Yemen to the outside world, which constitutes 90 % of Yemen’s exports abroad.

Today in Yemen, the oil map include 101 oil sector, 13 are already a productive sector working in it 10 oil companies, 8 sectors are under negotiation and the remaining sectors are under explore and open.

According to the chairman of the exploration and production of oil, the Plan Commission for the current year 2011 includes the drilling of 117 wells spread over 24 exploration wells, 11 wells Haknah and 82 wells developments, the implementation of surveys, seismic two-dimensional area of ​​6239 km and surveys of seismic three-dimensional area of ​​2893 km.2

C. Laws Regulating the Oil Sector in Yemen

The oil sector is regulated by a Special Agreement between the government and the companies drilling or explore for oils in Yemen.
While Investment Law No. 22 of 2002 regulates Investments in Yemen, this law does not apply to the oil sector according to Article 1 of the law which reads as follows:

“This law aims to promote and regulate the capital investment of Yemeni, Arab and foreign subject to the provisions of this law within the state’s general policy, objectives and priorities of the national plan for economic and social development, consistent with the provisions of Islamic Sharia in all sectors except the following:

1 – explore and extract oil, gas and minerals that are governed by special agreements.”3
In order to develop production sharing agreements, the Ministry of Oil and Minerals launched during the year 2008 the fifth generation of production sharing agreements, which included the first use of gas as well as oil and included the best economic conditions that serve the national economy along with an emphasis on environmental protection in all activities of exploration and production and export and provides more attractive incentives for investment companies.4

D. Conclusion

As the oil sector is considered an important sector in Yemen, some criticism have been brought to the government for not promulgating a respective law governing this oil sector and therefore is depending on Special Agreements between the government and the foreign companies extracting and exploring the oil in Yemen.

Some analysts believe that one of the causes of the revolution in Yemen nowadays was according to the corruption in Oil sector which was under sovereign of government without any law governing this sector and lack of transparency in announcing the real numbers of revenues from the government side and from the companies on the other side, as people see that the revenues of the oil sector were not fairly distributed.

July, 2011 Abdel Hameed Galal
Meyer-Reumann & Partners – Cairo
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