Yemen faces the daunting challenge of transitioning away from an economy based upon resource rents to an economy based upon harnessing the power of Yemeni labor inside of Yemen. If this were not difficult enough, the economy also faces a short term crisis related to the unsettled political conflicts raging since 2011. The twin crises are related, as the transition to a domestic economy requires not only political peace, but also state capacity to organization a more diverse economy that harnesses and develops the abilities of domestic labor. The longer the political conflicts rage, the longer the transition to growth in a post-hydrocarbon economy will take. This paper will examine the progress and prospects of the transitional government in addressing the pressing short and medium term crises facing the economy.