Oil's decline means that the Yemeni political economy faces tremendous challenges in the medium future as it moves towards more diverse sources of growth. The success or difficulty of Yemen's economic transition will depend to a great extent upon the capacity of the state to regulate and tax. Unfortunately, precisely at the moment the state is called upon to invest in social and physical infrastructure for domestic growth, the state is challenged with its own declining revenues and severe political crises, the majority of which observers attribute to the political strategies and tactics of the regime itself. So at the same time that the state called upon to promote economic growth, it must also begin to significantly tax the domestic economy in the midst of a severe crisis of political legitimacy. Of course there are other sources of state income such as foreign aid and grants which the state has relied upon in the past and which may indeed stem the immediate crises, but these are unsustainable in the long term and the state must develop the ability to collect domestic revenue from society to cover the bulk of its expenditure. Most observers doubt the ability of the state to develop the institutional capacity to tax, regulate, invest, and implement the programs that will help successfully move the economy towards a less oil dependent future. Some observers suffice with a blanket condemnation of corruption in the state. There are many different forms of corruption, though, and their economic outcome is not determinant. South Korea was famous for corruption during its period of unprecedented economic growth so the nature of corruption and its relation to growth needs specification. Others point to the rentier nature of the state and the patronage networks that the regime has relied upon in the last two decades. Here it is the lack of bureaucratic capacity and the reliance on cash for loyalty that is problematic. Still others lament the role of 'customary' or 'traditional' politics, i.e., tribes and clans, that inhibits the kind of political capacity necessary for state development. Some point to the role of external actors such as Saudi Arabia or the United States in undermining domestic political development and others point to the regime's 'divide and conquer' strategies. This paper will attempt to evaluate each of these arguments and assess the future of the Yemeni political economy.