The Red Sea's Profitable Chaos: Why Institutional Dormancy Serves External Interests

Yemen's path to stability has vanished. Regional institutions meant to coordinate Red Sea

security have systematically failed, crushing reconstruction prospects that once appeared within

reach. Maritime insurance markets tell the real story: war-risk premiums for Red Sea transits

jumped from 0.05% to 1.0% of hull value, a staggering 2,700% increase adding $1.2 million per

voyage for a $120 million vessel. Markets grasp what diplomats refuse to admit: Yemen's

collapse has become more profitable than its reconstruction.

This goes beyond mere neglect. It's a calculated strategy that weaponizes Yemen's failure,

undermines global maritime security, and blocks peace in ways that protect lucrative extraction

deals.

The Architecture of Extraction:

When Saudi Arabia created the Red Sea Council in January 2020 to coordinate security among

eight coastal states, it built a framework designed for inaction. Five years on, the council has

launched zero joint projects, deployed no security measures, and allocated no reconstruction

funds.

This wasn't about a lack of resources. Saudi Arabia's Vision 2030 commits $533 billion to

development. The kingdom could easily fund Yemen stabilization to protect the East-West

pipeline carrying 5 million barrels daily. Yet extraction has proven far more lucrative.

Egypt's situation reveals the fiscal logic. Suez Canal revenues plummeted from $9.4 billion to

$7.2 billion, a $2.2 billion hit representing 0.6% of GDP for a country already carrying public

debt at 82.6% of GDP. Houthi attacks slashed Bab al-Mandab oil flows from 8.7 million to 4.0

million barrels daily. The US, UK, and EU spent hundreds of millions on military operations while

the Red Sea Council allocated nothing. When a dormant institution costs Egypt billions while

external powers profit from chaos, its true purpose becomes clear.

The UAE built the most elegant extraction system. On Yemen's Socotra island, UAE presence

includes military bases and $110 million in humanitarian aid. ADNOC maintains a fuel monopoly

charging 40% premiums. Some 800 Socotri men depend on UAE paychecks, creating

dependencies that make reconstruction financially senseless for the external party.

Sudan shows the full scale. Official gold exports hit $1.5 billion in 2024, with another estimated

$1.5 billion smuggled through militia routes. That's $3 billion flowing annually to UAE refineries

and Dubai traders. The US Treasury sanctioned these operations in June 2023, yet extraction

persists because it finances both sides of Sudan's civil war. Even after Sudan cancelled the $6

billion Abu Amama port deal in November 2024 and severed diplomatic ties in May 2025,

extraction continues through different channels.

Turkey built a parallel model through commerce rather than military force, gaining 30% of Somalia's EEZ revenue for building its navy while managing Mogadishu port through 2034.

These competing systems share one feature: both profit from preventing reconstruction that would eliminate their revenue streams.

The Cost of Chaos:

Yemen's economy has contracted 58% since 2018. Government revenues fell to 6% of GDP.

The country operates with rival central banks, currency devaluation from 1,540 to 2,065 riyals

per dollar, and 19.5 million people dependent on humanitarian aid. Transportation infrastructure

needs at least $15 billion to rebuild, yet Yemen's fiscal capacity is near to zero. External

powers compete for revenue shares from a government unable to pay salaries.

The current path guarantees a permanent tax on maritime shipping costing the global economy

far more than reconstruction would require. Insurance markets already price Red Sea transit as

structural risk, not temporary disruption. The question isn't whether diplomats will accept market

realities, but how many billions the global economy will pay in compounding premiums before

they do.

Breaking the Deadlock:

Monetary unification and port rehabilitation:

Yemen needs central bank unification with gradual exchange rate alignment. Dysfunctional ports should be repaired through an international consortium modeled on Mozambique's Maputo Port Development Company, where private investors received equity stakes earning returns as cargo recovered.

Revenue-sharing tied to reconstruction: 

The resumption of oil exports requires international monitoring with 30% set aside for reconstruction bonds serviced by future production. Neutral institutions must hold escrow accounts with payments dependent on achieved progress. This converts competing revenue claims into shared interest in maximizing production.

Institutional capacity independent of factional control:

  Judicial improvements must proceed through training programs producing young Yemeni judges free of factional loyalties, following Uzbekistan's successful 2016 approach of recruiting top law graduates for intensive training outside existing courts. These mechanisms make reconstruction more profitable than extraction by aligning financial returns with stability.

The Choice Ahead:

The current equilibrium persists because each actor profits individually from Yemen's dysfunction while bearing costs collectively. Breaking this requires changing incentives: external actors must earn increased profits from reconstruction rather than extraction, while internal Yemeni factions must gain more from cooperation than competition.

Markets have priced in institutional failure. Egypt loses $2.2 billion annually. Global shipping

pays compounding premiums exceeding reconstruction costs many times over. The question is

whether international institutions can capture these diffuse costs and redirect them toward

coordinated investment, or whether profitable chaos will persist until external shocks force

change.

Unlike Yemen's military situation, this isn't irreversible. It's an incentive problem awaiting an

institutional solution.