Are U.S. Sanctions on Yemen's Banks Fueling a Humanitarian Catastrophe?

The U.S. Treasury's latest sanctions on the International Bank of Yemen and its key leaders, announced on April 17, 2025, aim to choke off financial support for the Houthis, a group backed by Iran and designated as a terrorist organization. At first glance, the move seems like a decisive strike against a network threatening global trade with attacks on Red Sea shipping. But dig deeper, and the story unravels into a troubling reality: these sanctions, while targeting a dangerous group, risk plunging Yemen's already fragile economy into deeper chaos, hitting ordinary people hardest.

Yemen, a nation where 80% of the population lives in poverty, depends on a delicate web of remittances and humanitarian aid to survive. The Treasury's actions, part of a broader campaign to isolate Houthi-controlled financial institutions, have frozen assets and slashed international transactions for the targeted banks by up to 95%. This sounds like progress against terrorism, but the ripple effects are devastating. Families who rely on money sent from relatives abroad, often from Saudi Arabia, now face delays or outright barriers to accessing those funds. Food prices are soaring, and the Yemeni riyal is in free fall.

The narrative pushed by the Treasury paints a clear picture: the Houthis are exploiting banks like the International Bank of Yemen to fund their attacks, and sanctions are the solution. But this framing glosses over a critical truth. Yemen's banking sector, already fractured by years of conflict and competing authorities in Sana’a and Aden, is a lifeline for millions. Disrupting it doesn't just hurt the Houthis; it destabilizes the entire country, undermining the very people the U.S. claims to support through its backing of Yemen's internationally recognized government.

What's at stake here isn't just geopolitics. It's the survival of Yemenis who have endured a decade of war, starvation, and displacement. Sanctions may sound like a clean, surgical tool, but in Yemen, they're more like a sledgehammer, smashing through the lives of the vulnerable while the Houthis, adaptable and entrenched, find ways to skirt the consequences.

Sanctions on Yemen's banks, including the International Bank of Yemen and earlier measures against Yemen Kuwait Bank, have slashed the Houthis' ability to move money through formal channels. Data shows a 90% drop in international transactions for Houthi-linked networks, a win for counterterrorism efforts. But the collateral damage is staggering. Yemen imports 90% of its food, and with banks cut off from global financial systems, trade is grinding to a halt. The result? Skyrocketing prices for basic goods and a worsening hunger crisis in a country where millions are already malnourished.

Remittances, which total $3.77 billion annually and sustain countless families, are another casualty. These funds, often sent by Yemeni workers in Saudi Arabia, are a lifeline for people like Fatima, a mother of three in Sana’a who relies on her brother's monthly transfers to buy rice and medicine. When banks face sanctions, the flow of remittances slows, and people like Fatima are left scrambling. Humanitarian organizations, already stretched thin, report disruptions in aid delivery as financial restrictions complicate their operations.

The Treasury argues that these measures support Yemen's government in Aden by weakening Houthi control over the banking sector. But the reality is messier. The Central Bank in Aden's push to force banks to relocate from Houthi-controlled Sana’a has deepened the financial divide, creating parallel systems that confuse and exclude ordinary Yemenis. The Houthis, meanwhile, have turned to informal networks like hawalas and even cryptocurrencies to evade sanctions, adapting faster than the international community can respond.

This isn't to say the Houthis are blameless. Their attacks on Red Sea shipping, enabled by Iranian support, have disrupted global trade and endangered lives. But sanctions that punish an entire nation's economy for the actions of one group raise serious questions. Are we truly weakening the Houthis, or are we creating a power vacuum that they can exploit by posing as defenders of Yemen's suffering masses?

The Treasury's sanctions are rooted in a decades-old playbook: isolate terrorist financiers, freeze their assets, and force compliance. Historically, this approach has frozen millions in assets and disrupted groups like Al-Qaida and ISIS. But it’s not a silver bullet. Terrorist organizations are nimble, shifting to cash couriers, informal money transfers, and digital assets to keep funds flowing. In Yemen, the Houthis have already shown this adaptability, using unregulated channels to sustain their operations even as banks like the International Bank of Yemen face crippling restrictions.

Advocates for the sanctions argue they’re essential to counter Iran’s influence, given the Houthis’ role in Tehran’s regional strategy. Iran’s support, including weapons and training, has fueled Houthi attacks and destabilized the region. But this perspective ignores a broader truth: sanctions often hurt the powerless more than the powerful. The Houthis, with their grip on northern Yemen and access to alternative financial networks, are better positioned to weather these measures than ordinary Yemenis, who face the immediate fallout of a collapsing banking system.

A smarter approach would prioritize precision over blunt force. Targeted measures against specific Houthi leaders and their illicit networks, paired with robust support for Yemen’s government to rebuild a unified banking system, could weaken the group without punishing civilians. International coordination, as emphasized by the Financial Action Task Force, is critical to closing regulatory gaps and tracking new evasion tactics like cryptocurrency use. Yet the current strategy seems more focused on signaling resolve than delivering results.

The U.S. claims to stand with Yemen’s people, but actions speak louder than words. By prioritizing sanctions that destabilize the economy, we risk alienating the very population we aim to support, handing the Houthis a propaganda victory they don’t deserve.

Yemen’s crisis demands a rethink of how we combat terrorism financing. The goal should be to weaken the Houthis without sacrificing the livelihoods of millions. This starts with protecting the flow of remittances and humanitarian aid, ensuring that sanctions don’t inadvertently block these lifelines. The U.S. and its allies must work with Yemen’s government in Aden to strengthen the banking sector, not just through relocation mandates but by investing in infrastructure and regulatory frameworks that restore public trust.

The international community, including the UN and Saudi Arabia, has a role to play in mediating a unified financial system that reintegrates Yemen into global networks. This won’t be easy, given the Houthis’ resistance and the entrenched divide between Sana’a and Aden. But a Yemen where banks function, trade flows, and families can access their money is a Yemen less vulnerable to exploitation by groups like the Houthis. Sanctions alone won’t achieve this; they must be part of a broader strategy that prioritizes human welfare over geopolitical wins.