Traffic policeman (de facto authorities) in Sanaa, Yemen. Photo: Peter Salisbury
3. Capabilities: the Bureaucracy and De Facto Authorities
In an idealized flowchart of the workings of an orderly state, a legitimate executive would direct a professional civil service to implement its policies using the resources and technocratic know-how at the state’s disposal. These policies would be calibrated both to meet the objectives of the governing authority and to provide the state with enough legitimacy to ensure that the population does not think an alternative arrangement preferable.
Yet as many Western development officials have learned over the past several decades, the presence of formal bureaucracy – e.g. a ministry building occupied by bureaucrats – is not the same as the ability to implement policy effectively, provide security or collect taxes.40 Capability – the ability to perform the functions associated with statehood – can be fragmented between the formal bureaucracy and emerging de facto authorities. Despite the latter’s considerable capabilities – e.g. mobilizing fighters against insurgencies, fostering economic activity, collecting taxes and generating revenues, and providing healthcare and basic services – international policymakers have tended to ignore de facto authorities.41 Yet de facto authorities could be of benefit during stabilization and state-building periods.
As many Western development officials have learned over the past several decades, the presence of formal bureaucracy is not the same as the ability to implement policy effectively, provide security or collect taxes.
As noted elsewhere, a vital question for international interlocutors is how to identify key actors, and when and how to engage with them. One answer is to focus on de facto rather than de jure capabilities, within a more general framework of accountability. Amartya Sen’s ‘capability approach’42 provides an analytical framework that can be used to identify the de facto authorities in Iraq and Yemen. Sen argues that groups and individuals vary in their ability to convert the resources at their disposal into ‘functionings’ – either a state of being (good quality of life, for example) or ‘doings’ (tangible outcomes that have utility or financial value). To understand why different outcomes occur, and why actors choose these outcomes, Sen assesses the resources available to particular actors or groups, their personal ‘utilization function’ (meaning their physiological and intellectual capabilities, more simply defined as know-how or ‘capacity’) and the environment in which they operate (‘context’). This provides the analyst with a ‘capability set’: the options available to the actor in question.43
This approach has utility for analysis of policy options in the context of fragmentary transformations, where the formal bureaucracy is either unable or unwilling to produce tangible outcomes on the ground, ranging from security to service delivery. Instead, to varying degrees, de facto authorities infiltrate the state, sideline, co-opt or merge with the formal bureaucracy, and displace the recognized executive, at times simultaneously developing parallel military and economic structures in order to do so. In performing an initial analysis of the country in the midst of fragmentary transformation, we argue, policymakers should take an agnostic approach as to who should be doing things, move away from the ‘state versus non-state’ debate, and instead ask who actually does them, how and why.
To understand the divergence between the formal bureaucracy and the de facto authorities, this chapter focuses on armed groups’ military and economic/rent-generating capabilities. It also seeks to build a picture of where connections need to be established between those who, so to speak, ‘should’ perform state-like functions (i.e. the executive), those who ‘can’ do so (i.e. the bureaucracy), and those who actually ‘do’ (the de facto authorities).
Capabilities are linked to legitimacy. A group that is able to enjoy battlefield success, attract economic activity or generate revenues can feed these gains back into society, thereby reconstructing state–society relations while at times bypassing or subsuming the formal mechanisms of the state. In this way, local populations can perceive a de facto authority as more legitimate than the formally legitimized executive or the official bureaucracy. However, international policymakers continue to focus on executives, and on the formal bureaucracies that report to them, regarding these as the legitimate institutions.
Military capabilities
The weakening of the unitary state and the emergence of conditions towards the ‘chaos’ end of the spectrum in Iraq and Yemen have fragmented military capabilities at the national level. As a result, many different actors have taken up arms and developed their own arsenals. They have become the de facto military authorities, often reporting neither to the formally recognized executive nor to the bureaucracy. At times these actors share the security burden with the state, particularly when the state’s armed forces are weak or ineffective. At other times, they use their capacities to compete with or capture the state, while also competing with one another for influence.
In this section, we identify the main armed groups in Iraq and Yemen. We analyse how they cooperate and compete with the state and one another, and how capable each group is. We find that knowledge, morale, religious ideology and attachment to a specific geographic territory are the most reliable predictors of success, along with the transfer of expertise and strategic/tactical capabilities from external supporters.
Iraq
In Iraq, the security sector has struggled to perform effectively since 2003. At different times, armed actors and militias – de facto authorities outside the command of the formal bureaucracy (the armed forces) – have stepped in to provide security. These groups maintain their own command structures and have not integrated into the state. As a result, the security sector in Iraq remains fragmented between the Iraq Security Forces (ISF) and more capable de facto authorities with their own affiliations.
These challenges reflect the cycle of dismantlement and reconstruction in the military and security services since the US-led invasion.44 All available military capacity was initially removed, leading to a vacuum in capability (beyond the occupying US and allied armed forces) that persists to this day. Thousands of suddenly unemployed fighters found employment with insurgent armed groups, including Al-Qaeda in Iraq (AQI) and later ISIS. These fighters, trained in military combat and familiar with the Iraqi terrain, gave insurgent networks and groups strong military capabilities, leading to successes on the battlefield, such as in 2014 when ISIS managed to conquer one-third of Iraq’s territory.
The US and the post-2003 Iraqi government had to restructure Iraq’s military and security forces for national defence, internal security and constabulary duties. These new structures were infiltrated by militiamen from the country’s political parties. For instance, in 2004 a part of the Badr Organization integrated into the Ministry of Interior (MOI). However, not only did Badr maintain a group of fighters separate from the formal bureaucracy, the group also ensured that the fighters seconded to the ministry remained loyal first to Badr itself. Today, Badr and the PMU control most parts of the MOI, from the minister to the federal police. Since 2003 there has been a clear gap between the formal bureaucracy and the de facto authorities on the ground, the latter of which are linked to non-state identity-based groups.
In response to groups such as Al-Qaeda, which exploited the absence of strong state security forces to seize territory and attack state facilities, the US identified and empowered non-state de facto authorities to drive Al-Qaeda out as part of the Sunni Awakening in 2006–07.
For instance, in response to groups such as Al-Qaeda, which exploited the absence of strong state security forces to seize territory and attack state facilities, the US identified and empowered non-state de facto authorities, including fighting forces from tribes in Fallujah (Anbar) and the northwest of the country, to drive Al-Qaeda out as part of the Sunni Awakening in 2006–07.45 This approach proved effective in part because the fighters were motivated to push a rival force out of their home territory, and also because they were provided with arms and finances by US forces.
However, such short-term expedients meant that the ISF was never able to regain de facto authority. Instead, the Iraqi government came to rely heavily on informal militias and the forces of leading political figures and parties. The formal executive circumvented the bureaucracy to directly task its own implementers.46 When ISIS emerged in late 2013 and 2014, the ISF was not capable of defending Iraqi territory. Also, notoriously, the ISF fled from Mosul in June 2014.
The PMU: a hybrid actor
To oust ISIS, the Iraqi government initially relied on volunteers, who formed the PMU. The PMU groups were the first to begin fighting ISIS. The PMU mobilized first among the seven armed groups that already operated in the country – exemplifying the benefits of pre-existing structures.47 Many other groups were also formed as part of the Popular Mobilization Units Committee (PMC).48
The PMU’s main attribute during the crisis was its ability to recruit large numbers of motivated fighters who were answering a religious fatwa to fight. According to various claims from well-informed sources in Baghdad, more than 75 per cent of men aged 18–30 residing in predominantly Shia provinces volunteered for the PMU. Although the roster of active fighters is around 55,000, the organization claims to have 122,000 fighters on paper – a far greater number than any other security institution in Iraq. In contrast, the ISF struggled to recruit fighters to combat the threat of an invading ISIS. Many Iraqis did not have faith in fighting for the state’s security service following its dramatic retreat from Mosul.
The PMU is a hybrid actor, in that it has de facto authority but not yet complete de jure recognition. More critically, the PMU both cooperates with and competes against state forces at different times.
The PMU is a hybrid actor, in that it has de facto authority but not yet complete de jure recognition.49 More critically, the PMU both cooperates with and competes against state forces at different times. During the fight against ISIS, the PMU was the first force to stop ISIS’s advances, particularly around the so-called ‘Baghdad belt’. Throughout the fight, the paramilitary groups that made up the PMU were integral to the Iraqi state’s territorial gains over ISIS. However, despite helping the state to restore control in this key respect, the PMU has also at times been a disruptive force, putting pressure on the formal bureaucracy and executive. For instance, following the Kurdish referendum in 2017, PMU leaders informed Prime Minister Abadi of their intention to advance on the province of Kirkuk, which since 2014 had been under de facto Kurdish control. Seeking to maintain some control, Abadi had little choice but to agree to the plan.50 In interviews after these events, officials from the administration argued that Abadi had less agency in the matter.
Yemen
In Yemen, the September 2014 takeover of the capital by the Houthis, in partnership with former president Saleh, left the group in effective control of major state security institutions, including the defence and interior ministries as well as elite military units and their stockpiles of weaponry; in other words, the Houthi rebels came to control much of the bureaucracy and the state-linked de facto authorities.
The Hadi government’s Yemen National Army (YNA), meanwhile, was formed from the rump of the military and bolstered by mass recruitment of tribal and other fighters. The YNA is noted for its weak capabilities despite receiving training, salaries and weapons from Saudi Arabia. The main legitimizing factor behind its forces is their affiliation with the internationally recognized executive, i.e. the Hadi government.
Ansar Allah
While the assorted forces affiliated with the Sanaa-based Ansar Allah movement are generally described as ‘Houthis’, in reality the military structures in the country’s northwest are a hybrid of the group’s militias and the remnants of forces under the command of the pre-war interior and defence ministries along with other state institutions. As such, the de facto Ansar Allah authorities in Sanaa are a good example of the kind of hybrid actor often encountered in countries in the midst of fragmentary transformations. By some estimates, some 60 to 70 per cent per cent of the army, police and paramilitary formations in Yemen joined the Houthi–Saleh alliance during the early days of the war.51 While there have been a number of defections since Saleh was killed by Houthis during infighting in December 2017, the group still has an estimated 180,000–200,000 armed men under its control, less than half the official figure for the YNA (see below).52 The Houthis also have access to multiple weapons systems, ranging from tanks and technical vehicles to anti-tank guided missiles and ballistic missiles, which they have used to attack Saudi Arabia.
The hybrid northern force serves both policing and offensive military functions, and is noted for its ability to move important brigades to key front lines at short notice. It benefits from the capacities of both the Houthi militias – which fought six successive wars with the Yemeni state between 2004 and 2010, and became a highly effective insurgent force, likely with some assistance from Lebanese Hezbollah – and the Yemeni military bureaucracy and de facto authorities, including elite US-trained counterterrorism forces. Ansar Allah also benefits from high levels of motivation among its religiously inclined members, some of whom believe they are engaged in a regional war against the US (Washington is perceived by the Houthis as working in the service of Israeli interests), as well from Yemeni nationalists who see their country as under siege from Saudi Arabia.
The hybrid northern force first expanded its territorial reach to include areas outside traditional Zaydi control in Yemen’s northern highlands, but was later pushed back by rival armed groups. However, it still controls and contests around a third of Yemen’s territory, including the major population centres and the capital. It has used long-range ballistic missiles since the beginning of the war to attack targets inside Yemen, Saudi Arabia and, it claims, the UAE. It has also used short-range missiles, likely with the support of Iran, to attack military vessels and armoured vehicles.
The YNA and Southern Resistance Forces
The Houthis’ rivals include the many groups that broadly fight under the banner of the Yemen National Army (YNA) and Southern Resistance Forces (SRF). These groups enjoy – or, in the case of the SRF, enjoyed – a veneer of formality and legitimacy thanks to being ostensibly overseen by an internationally recognized executive, the Hadi government. Yet in reality the pre-war bureaucracy and a large number of formal authorities have remained under Houthi control, while the de facto authorities affiliated with the government of Yemen lack an overseeing bureaucracy. At the same time, the UAE-backed SRF – which have much stronger capabilities – are in effect overseen by an external bureaucracy in the form of the UAE authorities, and by the non-state STC.
Government salary data suggest that the YNA’s forces number around 450,000–500,000.53 However, this estimate includes a large number of so-called ‘ghost’ soldiers: fictitious or absentee names listed on the military payroll to enrich commanders. The YNA’s presence is most concentrated in the Al Jawf, Mareb and northern Hadramawt governorates, and it is the dominant force in the city of Taiz. The YNA also oversees the fight at fronts on the Saudi–Yemeni border; and in Hajja governorate in northwestern Yemen, where Yemeni forces are supplemented by at least one brigade of Sudanese soldiers. YNA brigades were also present in Aden until August 2019, retain positions in Lahj, Abyan and Shabwa, and fight along the Red Sea coast.
It is not entirely clear how capable or motivated these forces are, given the lack of territorial gains they have made since 2015 compared to those achieved by UAE-backed southern forces (see below). While YNA fighters operate under the banner of ‘fighting to go home’, many are allegedly reluctant to enter battles in their home areas, fearing the long-term repercussions in a tight-knit society with strong tribal structures.54 The exception are some highly motivated nationalist and Salafist (but not Salafi-jihadi) factions.
In contrast to the YNA, the so-called SRF have enjoyed the most battlefield success against the Houthis over the course of the conflict. Since 2016, the UAE has been training, equipping and exercising effective command and control over a range of paramilitary forces in southern Yemen, whose roles range from checkpoint security to counterterrorism and frontline combat.55 A number of fighters are formally registered as police and soldiers, and ostensibly fall under the control of the internationally recognized government of Yemen (under the commands of the defence and interior ministries). But senior government officials are clear in saying that these forces are in fact overseen by UAE commanders based in Aden, Mokha and Mukalla.56 The secessionist STC also claims control of these forces under the umbrella of the SRF.57
Since 2016, the UAE has been training, equipping and exercising effective command and control over a range of paramilitary forces in southern Yemen, whose roles range from checkpoint security to counterterrorism and frontline combat.
The SRF’s frontline forces are among the most capable in Yemen, aside from those of the Houthis. In earlier inceptions, the SRF pushed the Houthis out of Aden, the southern city which the government has named its interim capital, and then out of the major southern governorates. In August 2019, SRF units led by the STC were instrumental in seizing military bases and government institutions previously held by the Hadi government, in what the government has described as a UAE-led coup, highlighting the fact that Hadi executive’s power over these groups was nominal at best.
The command lines for other groups are opaque. In 2018, the UAE-backed Giants Brigade – made up of Salafi fighters from the south and some STC-affiliated brigades – made a series of military gains against the Houthis, pushing up the western Tihama coast to encircle the Red Sea port city of Hodeida (aided by UAE air support and guided munitions). Many of these forces were Salafists motivated by ideology and a desire for revenge against the Houthis, and are said to subscribe to the philosophy of wali al-amr, simply translated as ‘obedience to the leader’.58 The forces of the Giants Brigade were subsequently assisted by the Guards of the Republic, another UAE-backed military formation, led by Tareq Saleh, the nephew of former president Saleh. This unit does not fall under the command of the Hadi-led defence ministry, and until December 2017 was allied with the Houthis. It is unclear who these groups ultimately report to beyond their UAE handlers who oversee the Red Sea coast theatre.
Economic/rent-generating capabilities
The state has historically played an important role in the economies of both Iraq and Yemen, through public-sector activity and the ruling regimes’ close relationships with elites. It is widely accepted, meanwhile, that the evolution of political systems from anarchy to order involves a shift from ‘roving to stationary bandits’ – i.e. from raiding to tax collection.59 Taxation affects the state’s ability to provide security and basic services. The revenue base of developing states is not always derived from direct taxation.
In both Iraq and Yemen, control of the economy has fragmented. Pre-war actors remain well placed to sustain their positions as the primary drivers of trade, but the state’s role as regulator has dissipated, as has the overt influence of external players and international legal norms. Both developments have created openings for higher levels of illicit trade. Actors in both states often prioritize trade over production in pursuit of quick cash. We argue that the key determinants of a particular actor’s success are pre-war capacity, connections to powerful players (either among armed groups or within state institutions), and access to territory and foreign capital.
Iraq and Yemen have also historically been ‘rentier states’ – meaning they control a natural resource that provides them with revenues not reliant on any relationship with the wider population beyond those in resource-rich areas.60 Those who levy taxes are rarely those with the legal-rational legitimacy and authority to do so, at least from an international perspective. Instead, the primary determinant of the ability of a group to tax is control of territory and coercive ability. Effective rentierism at the international level, however, depends on legal-rational legitimacy. The sale of oil and gas requires international legal legitimacy, even if those who actually produce and transport oil are not the same as the executive. As such, de facto authorities have an incentive to capture the formal bureaucracy.
Iraq
The defining characteristic of the Iraqi economy is its reliance on oil. Despite the post-2003 weakening of the unitary state, rentierism has kept the central government not only relevant but at the heart of the economy. Both before and after the US-led invasion, Baghdad also played a crucial role by acting as employer of last resort and underwriting fuel and electricity subsidies. The state kept down the cost of living and provided livelihoods through jobs in the civil service and military. As mentioned, by 2015 an estimated 3 million people – around two-thirds of the workforce – were employed in the public sector.
Despite its continued importance, the Iraqi state’s control over the economy has weakened over time. Indeed, this shift started not in 2003 but in the 1990s, when the US and its allies instituted harsh sanctions against the Baathist regime. The regime was forced to find alternative pathways to economic activity. In this way, the formal bureaucracy had to identify new de facto authorities that could work outside formal, internationally regulated trade networks. During the sanctions era (1990–2003), the regime in Baghdad established overland smuggling networks via Jordan, Syria and Turkey (the so-called ‘trucker’s trade’), and by sea through the Persian Gulf. From 1991 to 1996, according to the Independent Inquiry Committee into the United Nations Oil-for-Food Programme, Iraq sold US$2.6 billion worth of oil exclusively to Jordan. Then, from 1996 to 2003, Iraq sold US$3.3 billion worth of oil to Jordan, US$3.1 billion worth to Syria, US$806 million worth to Turkey and US$44 million worth to Egypt. The committee found that the regime earned US$11 billion from oil smuggling during the sanctions period.61
The regime had to cultivate alliances with newly empowered groups of de facto authorities that were part of informal economic networks. This strengthened the black market and encouraged the smuggling of petrol, cigarettes and alcohol. The networks that engaged in this trade included a wide array of actors: government officials, regime-allied individuals, external business partners, local political and business entrepreneurs, tribal leaders and workers. These traders became known as the ‘fat cats of the embargo’ (Qitat al-Hisar). Despite the economic fragmentation, every business actor depended on relations with powerful players, or with the government’s Republic Guard or other armed groups, to facilitate and protect the trade. For instance, in August 2000, according to one report:
Iraqi ministries were ordered to collect kickbacks on all contracts signed by suppliers of humanitarian and oil-spare-part goods to Iraq. Typically, these kickbacks were styled as ‘after-sales-service fees’ […] by late 2000, prospective vendors of goods to Iraq generally would not see their bids approved by the ministries without agreeing to pay an after-sales-service fee of at least ten percent of the contract value.62
The UN inquiry estimated that the regime earned US$527 million dollars from inland transportation fees from smugglers between 1999 and 2003.
While licit and illicit trade routes facilitated by merchants’ access to powerful elite players remained an important aspect of Iraq’s economy after 2003, the primary source of income since then has been the production and sale of oil. This has incentivized competition for control of central government institutions in order to obtain financial resources, a process known as the ‘splitting of the pie’ (taksim al-kake). Actors see control of state institutions as the most lucrative form of economic activity. As such, armed actors are incentivized to become part of the state (which has a budget of some US$100 billion).
In this system, those with capabilities, such as armed actors and political influencers, prey upon the formal bureaucracy. Often, political parties and armed actors (de facto authorities) take control of the state and replace or sideline the formal bureaucracy, i.e. the bureaucrats and technocrats employed by the state. In doing so, these actors are able to outsource labour costs by sending members within their patronage networks to receive state salaries. They also use proxy actors, who make up the special grades (darajat al-khasa, numbering some 4,000 members in the Iraqi civil service; and the wikala system, with 500 members who serve as proxies) within each ministry to ensure that major contracts are awarded to preferred business partners. This perpetuates the culture of kickbacks. As a minister told the authors: ‘Every Sunday, during our meeting to sign contracts, my director generals and deputy ministers present me with the companies that we must sign with.’63 And as a checkpoint commander told the authors: ‘You think I make a lot of money at this checkpoint? If we get one ministry in the government, we make 10 times or more.’64
Yemen
In Yemen, in a dynamic similar to that in Iraq, the Saleh regime’s main sources of rents were oil exports, the taxation of imports, and a growing service sector led by telecommunications and banking.65 The civil war, however, has since led to significant shifts in the structure of the political economy. In the first phase of the war, in 2015–16, although Sanaa continued to act as the economic centre of gravity, state institutions became increasingly constrained in their ability to generate and redistribute revenues. In particular, the Houthi-controlled capital lost access to oil export revenues, leading to a crunch in both general liquidity and foreign-currency reserves. This led to an effective debt default (the central bank began to roll over debt payments), unpaid salaries (affecting an estimated 6 million people), fuel shortages and a deepening foreign-currency crisis. The Houthis responded by increasing taxes, enforcing tax and duty payments, and developing a stranglehold over the import sector (particularly for fuel) and foreign currency. The internationally recognized government, meanwhile, had lost control over most state institutions.
The Houthi-controlled capital lost access to oil export revenues, leading to a crunch in both general liquidity and foreign-currency reserves. This led to an effective debt default, unpaid salaries, fuel shortages and a deepening foreign-currency crisis.
In the second phase of the war, starting in late 2016, the internationally recognized government began to attempt to wrest control of the economy from the Houthis. It did so first by announcing the relocation of the Central Bank of Yemen’s headquarters to Aden, and later by using state institutions to take control of the fuel import and foreign-currency markets.66 Yet while the government appointed a number of people to positions in what were effectively new bureaucratic institutions, and funded some capacity-building, the group it had appointed initially lacked the know-how and capabilities needed to restore the bank’s functions.67 To its advantage, on the other hand, were the government’s legal status and international legitimacy, which ensured that other private banks had little choice but to deal with the government, its appointees, the executive and the bureaucracy.
While it enjoyed some success with the relocation of the central bank before losing control of Aden, the Hadi government has only nominal control of territory outside the Houthi canton, and little institutional capacity for tax collection. Of the US$3.9 billion in revenues the government estimates that state institutions will generate in 2019–20, US$2.7 billion will not actually accrue to the government’s accounts; the bulk will be earned in Houthi-controlled territory.68 While customs are collected at the ports of Aden and Mukalla, the majority of revenue is diverted to local armed groups with a nominal relationship to the government; only a minority share accrues to the state.69
For revenues, the government depends on its legal claim to sovereignty over the country’s oil and gas. Oil exports from the Masila field in Shabwa governorate restarted in 2017 after a nearly two-year hiatus caused by the war. To export the oil, the government had to negotiate payments both to the tribes who surround the oil field and to the UAE-backed security forces that control Mukalla and nearby Ash Shihr, the oil export facility used for transporting oil out of the country.70 Oil production has since been restored at other fields in Hadramawt and Shabwa. The Hadi government estimates it will earn US$1.2 billion from oil exports in 2019–20.71 As this case demonstrates, when their respective interests align, the internationally recognized government can cooperate with non-affiliated or loosely affiliated bureaucrats (oil workers and officials who know how to produce and export oil) and ‘implementers’ (the oil field workers, and the armed groups that control the territory through which oil and gas transits).
Oil is also being produced in low volumes in the Mareb governorate. A small refinery processes around 10,000 barrels of crude oil a day, producing fuel and liquefied petroleum gas for sale into the local market, and generating an estimated US$800,000–1,000,000 a day in revenues (before accounting for overheads and profit-sharing with local tribes).72 Revenues from oil and gas sales, worth around US$250–350 million a year, are transferred to an account at the local branch of the Central Bank of Yemen.73 This branch is controlled by the local government, run by the governor of Mareb, Sultan al-Arada. Arada has become notable for his effective management of the governorate principally because local salaries are being paid and new infrastructure is being built in a largely secure environment.74 Mareb arguably has the highest level of ‘functionings’ achieved of any area of the country, thanks to strong security, residual capacity (the presence of oil field workers), and a willingness to use hydrocarbon revenues to fund public goods and services. This is another example of hybridity, where a semi-formal local executive, bureaucracy and implementers work in concert where their interests align. That said, it is interesting to learn that Arada’s legitimacy, which is derived from his formal position as governor and from his locally earned reputation, has allowed him to act outside the authority of the state structure overseen by President Hadi.
A small refinery processes around 10,000 barrels of crude oil a day, producing fuel and liquefied petroleum gas for sale into the local market, and generating an estimated US$800,000–1,000,000 a day in revenues.
The import of fuel into the port of Hodeida on the Red Sea coast represents another important economic lever. For much of the course of the war, this business has been dominated by Houthi-affiliated traders, although their ability to operate has recently been constrained by changes to the regulation of importers and currency exchangers.75 Elsewhere, a Hadi government-affiliated businessman, Ahmed al-Essi, dominates the import of fuel into Aden, while a small group of money exchangers controls fuel imports in Mukalla.76 Food imports, meanwhile, continue to be dominated by the major pre-war players, who have in the main established themselves in a middle ground between the different factions.
Taxing at gunpoint
On the ground, armed actors in both Iraq and Yemen use violence or the threat of violence to collect taxes. This collection can occur in various ways, from setting up checkpoints along major travel routes to pressuring local businesses and residents to pay protection money. The formal state authorities remain largely absent (and at times are even complicit in this process) in many localities, and are unable to enforce accountability. The potential profits to be made from taxation encourage armed actors to move away from an ‘underground’ model of insurgency and instead to actively acquire territory and legitimacy. This also allows actors to outsource their labour costs, as tax collectors or checkpoint guards can be directly paid. Ultimately, with the acquisition of territory, a group can then build a patronage network and eventually – if it secures enough territory – establish a social contract with the local population.
The ability to generate and collect revenues is not necessarily a reliable predictor of tangible outcomes in service delivery (or, in turn, of short-term legitimacy). However, in a few cases, actors are able to combine legitimacy, revenue generation and service delivery capabilities to provide most of the functions of the state.
Iraq
In Iraq, much of the early success of ISIS, which conquered one-third of Iraq’s territory, came from its taxation capabilities. It was able to generate up to US$1 million a day through taxes.77 The rise of ISIS in 2013–14 revealed the extent of this conflict economy. Unlike previous iterations (i.e. Islamic State of Iraq or AQI) that had operated in the same space, ISIS strove to be financially self-sustaining. Yet its economic rise was based on a structure that had existed in Iraq since the Baathist era. Some of its economic advisers were the very same Baathists who had been involved in bypassing sanctions in the 1990s.78 As such, pre-war capacity played a significant role in the oil and gas smuggling trade.
In northern Iraq, including the Kurdistan Region and the disputed territories, the Peshmerga armed groups have set up checkpoints where all incoming and outgoing trucks and business actors are taxed. These checkpoints are administered by Peshmerga linked primarily to the region’s two main political parties, the Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK). Both parties use their control over territory to collect revenues and build patronage networks. Elsewhere in Iraq, the PMU uses checkpoints to collect revenues. It holds checkpoints in all Iraqi provinces except the three in the Kurdistan Region. However, the PMU is an umbrella organization, and its checkpoints are run not on a centralized basis but rather by its constituent militias. The main groups profiting from the checkpoint business are the PMU’s strongest and best-armed forces: Kataib Hezbollah, the Badr Organization, Asaib Ahl al-Haq and Saraya al-Salam, among others.
When the state must be present, such as in trade across governorate or federal borders, the de facto authorities co-opt and cooperate with the formal bureaucracy. At these checkpoints, each armed group reaches an agreement with the local ISF commander to split revenues, often in favour of the militia. A mapping of informal trade from Basra and Kirkuk to Jordan reveals the actors involved. The ISF – part of the formal bureaucracy – supplies a form of state legitimacy to governorate and federal borders, while the de facto authorities make most of the profit.
Figure 6: PMU checkpoints on oil smuggling routes to Jordan, 2018
— Source: Eaton, T., Mansour, R., Salisbury, P., Khatib, L., Cheng, C. and Yazigi, J. (2019), Conflict Economies in the Middle East and North Africa, Chatham House Report, London: Royal Institute of International Affairs, https://www.chathamhouse.org/publication/conflict-economies-middle-east-and-north-africa.
Figure 6: PMU checkpoints on oil smuggling routes to Jordan, 2018
Yemen
In Yemen, as the state has fragmented into multiple cantons, different systems of taxation and rent-seeking have emerged, often necessitating cooperation between rival or unfriendly groups. In the northwest of the country the Houthis, who have a strong grip on local security, have maintained control of the major customs, tax and zakat authorities;79 the state-run fuel distributor, Yemen Petroleum Corporation (YPC), which in effect sets the level of fuel tax; and three key ports. Fuel prices have risen exponentially since the beginning of the war (in part due to market manipulation), while ministry officials in Houthi-controlled territories claim that their enforcement rate for tax payments has risen from around 40 per cent to close to 80 per cent.80 Zakat collection has been enforced similarly, while businesses claim that they have been charged heavy back-taxes. The Houthis have set up ‘customs’ checkpoints near the borders with rival cantons, where they impose levies on goods entering the most populous part of the country.81 The major mobile telecommunications companies in Yemen are headquartered in Sanaa, and have become a valuable source of revenues for the Houthis, as has the taxing of qat markets.82 The major aid agencies in Yemen run their operations from Sanaa, providing valuable inflows of foreign currency and taxable salaries for local staff.83 The Houthis have proven among the most effective taxers of all groups in Yemen, due to their monopoly over violence in the territories they control; their increasingly entrenched security and intelligence networks; and their increasing control over the buildings and human capital associated with Yemen’s pre-war institutions.
40 Matthews, M., Pritchett, L. and Woolcock, M. (2017), ‘Looking like a state: the seduction of isomorphic mimicry’, in Matthews, M., Pritchett, L. and Woolcock, M. (2017), Building State Capability: Evidence, Analysis, Action, Oxford Scholarship Online.
41 Cheng, C., Goodhand, J. and Meehan, P. (2018), ‘Synthesis Paper: Securing and Sustaining Elite Bargains that Reduce Violent Conflict’, UK Stabilization Unit.
42 Sen, A. (1989), ‘Development as capability expansion’, Journal of Development Planning, 19 (1): 41–58.
43 Ibid.
44 After declaring victory in Iraq in May 2003, the US formed the Coalition Provisional Authority (CPA) to run the country. The first order from the CPA was to disband most of the security structure, and to build new armed forces and security structures from scratch.
45 Dodge, T. (2013), Iraq: From War to a New Authoritarianism, London: Adelphi series.
46 The then prime minister, Nouri al-Maliki, for example, increasingly relied on the counterterrorism service, which he took out of the Ministry of Defence and put under his personal command in the prime minister’s office, along with a number of militias.
47 These groups are: the Badr Organization, Asaib Ahl al-Haq (AAH), Kataib Hezbollah (KH), Kataib Sayyid al-Shuhada, Harakat Hezbollah al-Nujaba, Kataib al-Imam Ali and Kataib Jund al-Imam. See Mansour and Jabar (2017), The Popular Mobilization Forces and Iraq’s Future.
48 The PMU would go on to include Sunni and other minority groups. Its units would become a sort of national guard with military operations throughout Arab Iraq. Like the counterterrorism service, the PMU was eventually recognized as a state actor, yet autonomous and outside the Ministry of Defence and Ministry of Interior structure. The PMU does not operate on a direct line of command and control.
49 Mansour, R. and Van Veen, E. (2017), ‘Iraq’s Competing Security Forces after the Battle for Mosul’, War on the Rocks, 25 August 2017,
https://warontherocks.com/2017/08/iraqs-competing-security-forces-after-the-battle-for-mosul/.
50 Based on interviews with sources inside the prime minister’s office at the time.
51 UN Security Council (2016), ‘Letter dated 22 January 2016 from the Panel of Experts on Yemen established pursuant to Security Council resolution 2140 (2014) addressed to the President of the Security Council’, http://digitallibrary.un.org/record/819771/files/.
52 Figure based on Chatham House interviews with senior Western and regional officials. Internal estimates of force size based on current frontline deployments.
53 Per documents provided to Chatham House and verified with government of Yemen officials.
54 Chatham House interviews with tribal sources, military leaders and others, October 2018–May 2019.
55 Knights, M. (2019), ‘Lessons from the UAE War in Yemen’, Lawfare, 18 August 2019, https://www.lawfareblog.com/lessons-uae-war-yemen.
56 Chatham House interviews, Aden, September 2018, March 2019.
57 Chatham House interviews, Aden, September 2018, March 2019.
58 Chatham House interview, senior Salafist leader, Aden, March 2019.
59 Olson, M. (1993), ‘Dictatorship, Democracy and Development’, The American Political Science Review, Vol. 87, No. 3, September 1993.
60 Beblawi, H. (1987), ‘The Rentier State in the Arab World’, Arab Studies Quarterly, Vol. 9, No. 4, Fall 1987.
61 Katzman, K. and Blanchard, C. (2005), ‘Iraq: Oil-For-Food Program, Illicit Trade, and Investigations’, https://fas.org/sgp/crs/mideast/RL30472.pdf.
62 Müller, J. (ed.) (1997), Reforming the United Nations ― New Initiatives and Past Efforts, The Hague: Kluwer Law International.
63 Interviews in Baghdad, March 2019.
64 Interview with checkpoint commander in Iraq, February 2019.
65 Salisbury (2011), Yemen: Oil, Imports and Elites.
66 Sanaa Center for Strategic Studies (2019), ‘An Interim Capital of Carnage – The Yemen Review, July 2019’, http://sanaacenter.org/publications/the-yemen-review/7941.
67 Chatham House interviews with three senior Central Bank of Yemen officials, March–April 2019.
68 Based on internal government documentation provided to Chatham House and verified by Government of Yemen officials.
69 Based on author interviews with local security forces, government officials, October 2018–May 2019. Hard estimates of the exact division of revenues are not currently available.
70 Author interviews with government officials and local observers, October 2018–May 2019.
71 Based on internal government documentation provided to Chatham House and verified by Government of Yemen officials.
72 Based on Chatham House interviews with officials in Mareb and Riyadh and internal documentation provided to and verified by Chatham House.
73 Ibid.
74 Ibid.
75 Author interviews with four Yemeni merchants, October 2018–May 2019.
76 Author interviews with four Yemeni merchants, October 2018–May 2019.
77 Hussein, M., Van Den Toorn, C. and Osgoode, P. (2014), ‘ISIS earning $1M per day from Iraq Oil Smuggling’, Iraq Oil Report, 9 July 2014, https://www.iraqoilreport.com/security/isis-earning-1-million-per-day-iraqi-oil-smuggling-12657/.
78 Sly, L. (2015), ‘The hidden hand behind the Islamic State militants? Saddam Hussein’s’, Washington Post, 4 April 2015,
https://www.washingtonpost.com/world/middle_east/the-hidden-hand-behind-the-islamic-state-militants-saddam-husseins/2015/04/
04/aa97676c-cc32-11e4-8730-4f473416e759_story.html?utm_term=.ce2bbe7aced0.
79 Zakat is a tax levied on income under Islamic law.
80 Chatham House interview with official focused on financial issues in Sanaa, March 2019.
81 Chatham House interviews with traders in Sanaa and Aden, March–May 2019.
82 Ibid.
83 Chatham House interviews with three individuals with close ties to the financial industry, January–March 2019.