MONETABRIEF - Houthi forces have advanced along the Yemen coast and captured islands including Perim at the Bab el Madeb Straits at the mouth of the Red Sea, in a bid to establish Iran style control of the seaway, reports said.
The lightning advance along the coast took outsiders by surprise as resistance of Republic of Yemen military crumbled with no support from the US or Saudi Arabia.
Inflationary Rate Cuts and Political Instability
Yemen, (at least Aden) was once had a currency board regime like the rest of stable GCC nations, but its change into a central bank with monetary policy allowed people to be oppressed with inflation and macro-economic policy.
In the 1970s after US macro-economists busted the Bretton Woods setting off Great Inflation, prices soared in Iran.
The government of the Shah blamed Bazaaris (merchant class), and slammed price controls and started an anti-profiteering campaign, alienating them, leading to protests that led to the fall of his government. (State Repression in the Iranian Bazaar, 1975–1977: The Anti-Profiteering Campaign and an Impending Revolution)
Oil prices have risen sharply over the Houthi advance and also strikes on a Saudi Oil pipeline raising costs in Sri Lanka.
Higher Oil Prices, Middle East Dependency
In 2026 Sri Lanka had assured supplies of LP Gas during the conflict as Geo Gas based in Switzerland, using US gas, won a bid supply.
In 2022 an administration was overturned due to money printing currency depreciation by macro-economists which triggered cooking gas and fuel shortages.
Sri Lanka has called competitive bids for LP Gas, instead of trying to renew the contract raising the possibility of being depended on Middle East cooking gas again. In 2022 an administration was overturned due to money printing and fuel shortages.
For coal Sri Lanka has got two suppliers and has geographical diversification of energy supply.
The effect of the Middle East conflict has been amplified in Sri Lanka by macro-economists who busted the currency from 300 to 330 by dishonoring its note issue and has resisted appreciation as kept inflation and pressure on family finances high to maintain a controversial inflation target through debasement.
FUEL PRICES : Oil prices have risen in 2026 as macro-economists dishonored notes debased the rupee under 'exchange rate as the fist line of defence' doctrine, amplifying an economic and political shock from the Middle East conflicts, as currencies in UAE, Qatar and Saudi Arabia remained rock solid without a policy rate (monetary policy).
Though fuel prices have been market priced by the government eliminating any balance of payments pressure, there is now a war chest of excess liquidity which macro-economists can dishonor under 'exchange rate as the first line of defence' and undermine democracy.
Houthi's, who are aligned with Iran, took control of the capital of unified Yemen, Sanaa in 2014-2015 as quantity easing and currency depreciation drove up oil prices leading to popular protests calling for fuel subsidies and relief.
Houthi Theocracy
The Houthis have a strategic objective to establish control over all of Yemen under a Shia-Zaydi theocracy ruled by their own Supreme Leader Abdulmalik al Houthi.
If Houthis maintain control over Bab el Madeb Straits, it will allow Iran style control over shipping along the Red Sea.
Republic of Yemen sources have identified Islamic Revolutionary Guard Corps Quds Force Commander Abdolreza Shahlai as the leader directing the Houthi campaign along the Red Sea coast, the Institute for the Study of War reported.
"Shahlai is a figure who has been heavily involved in providing military and financial support to the Houthis, including in the 2023-2025 Houthi campaign against Red Sea shipping," ISW said in an update.
"Anti-Houthi media reported on August 3 that Shahlai met with Houthi Supreme Leader Abdulmalik al Houthi in Saada Governorate in northern Yemen to discuss unspecified operations."
The Houthis have advanced rapidly as the US declined calls by the ROYG for air strikes and Saudi Arabia similarly did not provide support for government forces, reports said.
(Colombo/Sept12/2026)