Yemen's now infamous role on the world stage as the newest state to fail and become a terrorist safe haven can most easily be explained by its dwindling oil production. Like many middle eastern states, Yemen's government relies on oil exports for roughly 80 percent of its revenue. However, in the past six years Yemen's oil output has shrunk from 450,000 barrels per day to just 180,000 barrels per day. Until recently this sharp decline was masked by record high oil prices, but as oil prices have normalized, Yemen's economy finds itself on the brink of collapse. This loss of revenue comes at a particularly bad time for the Yemeni government as their country's security concerns continue to escalate. Yemen is currently fighting Shiite militia's in its Northern provinces not to mention the growing presence of Al Qaeda and other foreign fighters throughout the country.

The influx of Al Qaeda into Yemen can be directly linked to that states failing economy. Experts predict that Yemen's remaining oil wells will run dry within the next ten years. Impending economic destitution has however not caused Yemen's government to focus its efforts on creating some sort of economic life raft by say for instance reorienting itself towards a labor based economy. Instead Yemen's leader, Ali Abdullah Saleh, has chosen to reaffirm his family's stranglehold on power by appointing his kin to key government positions with the ultimate goal of ensuring that his son Ahmed succeeds him to the presidency. However, with less and less money to spend on security services to enforce his power, Mr Saleh is essentially securing his family's role as nothing more than the Mayor and city counselor of the capital of Sanaa. No national income not only means no money for a military but also ensures a complete lack of social services for anyone living outside of the capital, which after all is the primary purpose of having a government in the first place.

As we have seen in Lebanon, Afghanistan, Gaza, Pakistan, Egypt and countless other areas of the Muslim world, when governments fail to provide the most basic of services, extremist groups the likes of Hezbollah and Al Qaeda are more than happy to step in and foot the bill. This is what we are now coming to see play out in Yemen. As government revenues continue to shrink, security throughout the country deteriorates as less forces are deployed and corruption abounds. Less security means greater ease of movement for terrorists who come to Yemen not to hide but instead to operate in plain sight in the rural countryside where overtime they cement themselves into local tribal culture through inter marriage (a common AQ strategy).

The U.S. answer to the realization that Yemen is a failing state has been to double the security aid we send annually to Yemen to $140 million. This is a ridiculously low sum of money when you compare it to the $2 billion that Yemen's GDP has been declining by over the last 3 years. Furthermore, sending security aid to a country whose president considers the security of his family to be the nation's number one national security concern is really not money well spent. A smart use of the money that the U.S. borrowed from China, would instead be on promoting local economic development through the opening of vocational schools and the funding of local industries like cotton production and leather tanneries. Without this investment, Yemen is likely to go down the same road as Afghanistan with its farmers abandoning traditional crops for narcotics. Many growers in Yemen have already switched to growing Qat, a mild amphetamine quite popular in Yemen. How long before AQ starts taxing this trade?

The lesson here is that we need to tackle Yemen's problems less kinetically and more economically. The reason it is so important to get this right in Yemen is that Yemen is just the first example of a problem the international community is going to have to deal with more and more in Middle East in the coming years. The oil is running out and in many nations much larger than Yemen (Saudi Arabia, Iran, Iraq) there is simply not enough of an economy presence to make up the difference.

And that's my fifty cents (inflation....)