Lawfare: Is Iran Trying to Inflate Yemen’s Currency as a Tool of Warfare?

On November 20, the Treasury Department’s Office of Foreign Assets Control, which enforces sanctions, identified and designated individuals and entities connected to an operation by the Quds force, the special forces division of Iran’s Revolutionary Guard Corps (IRGC) to print counterfeit Yemeni money worth hundreds of millions of U.S. dollars using European equipment, the Lawfare blog writes.

According to Lawfare, Treasury only released limited information about the plot, but the sanctions are likely to spur policymakers to analyze carefully Iran’s next moves.

“Two developments are important to watch. First, the U.S. should be paying close attention to whether, and how, Iran might use economic warfare to destabilize an adversary’s economy. Second, the Quds force managed to draw Europe into its actions, tempting a European Union response; if Europe fails to respond adequately, it may embolden the IRGC.” Lawfare adds.

The revelation that the Quds force was printing the Yemeni rial invites the question: Why did the Iran choose to counterfeit Yemeni currency in particular? Yemen has been in the midst of a civil war since 2015, meaning that it has a weak government without the resources to stop a massive counterfeiting scheme. However, policymakers should also consider whether Iran is being more than opportunistic in choosing to counterfeit Yemeni currency. Perhaps—and this remains conjectural—Iran may be trying to circulate fake currency in order to destabilize the Yemeni economy through inflation.”

The World Bank estimates that Yemen’s economy contracted by about 37.5 percent since 2015 with a concurrent spike in inflation. Iran is currently supporting the Houthi rebellion against the Yemeni government, sending increasingly lethal weapons into the region, and therefore has an interest in weakening the government and the country’s economy, Lawfare adds.

It would not be the first time Tehran has used counterfeiting as a tool of economic warfare: Iran was tied to a counterfeiting scheme targeting the Iraqi economy in 1992. It flooded the economy with counterfeit money in order to increase inflation and destabilize the economy, Lawfare notes.