Yemen Conflict Escalation Warns of Regional Instability

By John Pranay (Editor)

A sudden escalation in the Yemen conflict has sent shockwaves through the Gulf region, with most markets retreating in response. The Saudi and UAE clash over Yemen has resulted in a significant shift in the balance of power, with separatists backed by the UAE making a lightning advance across the south-east. The eight governorates that made up the former South Yemen are now under their control.

The conflict in Yemen has been ongoing for years, with various factions vying for control. The Southern Transitional Council (STC), a secessionist group backed by the UAE, has been pushing for independence from Yemen. The STC's advance on December 2nd was swift and decisive, catching Saudi-backed factions off guard. The UAE's support for the STC has been a point of contention with Saudi Arabia, which has traditionally been the dominant force in the region.

• December 2, 2025: The Southern Transitional Council (STC) launches a lightning offensive across the south-east, seizing territory held by Saudi-backed factions.

• December 5, 2025: The STC announces that it has taken control of the eight governorates that made up the former South Yemen.

• December 10, 2025: Saudi Arabia condemns the STC's actions, calling them a "violation of Yemen's sovereignty."

• December 15, 2025: The UAE expresses support for the STC, stating that it is committed to a "peaceful and democratic solution" to the conflict.

The conflict in Yemen has its roots in the 2011 Arab Spring, when protests against the government of President Ali Abdullah Saleh led to his resignation. The power vacuum that followed was filled by various factions, including the Houthi rebels and the STC. The conflict has been marked by numerous attempts at peace talks, but a lasting resolution has yet to be reached.

Several risks have been identified as a result of the Saudi and UAE clash over Yemen. These include:

• A further escalation of the conflict, potentially drawing in other regional actors.

• A deterioration in relations between Saudi Arabia and the UAE, potentially affecting trade and economic ties.

• A humanitarian crisis in the affected regions, potentially leading to a refugee crisis.

• A destabilization of the global oil market, potentially leading to price increases.

The situation in Yemen is likely to remain volatile in the coming weeks. The UAE has announced that it will continue to support the STC, while Saudi Arabia has vowed to take action to restore its influence in the region. The United Nations has called for a ceasefire and the resumption of peace talks, but a lasting resolution appears to be a distant prospect. Key dates to watch include the January 10th meeting of the Arab League, where the situation in Yemen is likely to be discussed, and the February 15th deadline for the STC to withdraw its forces from the governorates it has taken control of.

Q: What is the current situation in Yemen?

A: The Southern Transitional Council (STC), backed by the UAE, has taken control of the eight governorates that made up the former South Yemen.

Q: What is the stance of Saudi Arabia on the situation?

A: Saudi Arabia has condemned the STC's actions, calling them a "violation of Yemen's sovereignty."

Q: What are the potential risks of the conflict escalating?

A: The conflict could draw in other regional actors, lead to a deterioration in relations between Saudi Arabia and the UAE, and result in a humanitarian crisis.

On balance, this event screens as Bearish in our sentiment view.

1. A lightning advance by separatists has reshaped Yemen's civil war — https://www.economist.com/middle-east-and-africa/2025/12/30/a-lightning-advance-by-separatists-has-reshaped-yemens-civil-war

Methodology: This analysis combines real-time data aggregation from manually selected global sources with advanced AI synthesis, engineered to provide neutral and data-driven insights.