Dubai (Platts)--21Mar2011/847 am EDT/1247 GMT

The fate of the once-divided state of Yemen was at a crossroads Monday as senior military and political leaders resigned from their positions and joined a growing anti-government protest to demand the ouster of veteran president Ali Abdullah Saleh.

"Saleh has an opportunity to make a historic decision now," said one of the opposition's youth leaders on al-Jazeera television, which aired footage of what appeared to be the largest demonstration in weeks of unrest in Yemen, an oil and gas exporter and the poorest country on the Arabian Peninsula.

Tanks were deployed outside the presidential palace in the capital Sana'a, where an increasingly isolated Saleh has faced a swell of popular anger over his heavy-handed handling of protests that threaten to unravel the cohesion of a tribal nation that was once split along north-south lines.

More than 20 people were killed in fighting in northern Yemen, where Saleh has been battling mainly Shi'ite Muslim Huthi rebels since 2004 in a fight that last year drew in Yemen's powerful northern neighbor, Saudi Arabia.

In the south, where Saleh has faced a secessionist movement, the governor of the southern province of Aden, home to the country's main oil terminal and refinery, also resigned on Monday as pressure grew on Saleh to quit.

The tank deployment in central Sana'a followed one of the bloodiest days in the uprising that has so far resulted in the deaths of more than 70 people and prompted the defections of senior army officers, including some from Saleh's own Hashid tribe.

Saleh's last ditch effort to restore calm by firing his cabinet failed to subdue the masses as they prepared to bury their dead on Sunday.

The US, which considers Saleh a key ally in the fight against al-Qaida militants operating out of Yemen, was compelled to condemn the violence in a strongly worded statement.

President Barack Obama's top counter-terrorism official on Friday condemned "in the strongest terms" the brutal crackdown on protesters saying it would feed extremism.

General Ali Mohsen al-Ahmar, an armored infantry division commander who Monday announced that he had joined the youth-led revolution, warned in a statement on al-Jazeera that the crisis was pushing the country to civil war and urged a peaceful transition of power.

The triple threats of rebellion in the north, secessionism in the south and al-Qaida militancy have made the country more vulnerable than its wealthier neighbors such as Saudi Arabia, to the type of unrest that brought about regime change in Tunisia and Egypt.

The regime has already been weakened by the resignations of ministers, ambassadors and a number of parliamentarians, but Saleh has so far refused to step down until his term ends in 2013.

Saleh, who was re-elected to a seven-year term in 2006, last month ordered social reforms to try to ease some of the economic pressures on the most vulnerable sectors of society in a country where the average age is 18 and unemployment is running at over 40%.

The inauguration of Yemen's LNG plant in 2009 after years of delay should have been a bright spot for the country but failed to repair deep flaws in the economy.

Yemen's economy faces huge challenges, the fall-out of which has contributed heavily to the state of political unrest that has fomented the spread of extremism and bred secessionist movements.

The country's dependence on its limited and rapidly dwindling oil reserves -- oil income generates 70% of the general budget, 92% of export income and 30% of GDP -- has turned an already volatile situation into a potentially explosive one, while posing a threat to the region at large.

From peak production of around 420,000 b/d in 2002, Yemen saw its oil production fall to 300,000-350,000 b/d last year. The civil unrest and rising violence now presents a big challenge for attracting new foreign investment.

While armed tribesmen in the Marib region to the east of the capital Sana'a have previously attacked an oil pipeline and engaged in gun battles with security forces protecting oil installations, these attacks have generally been considered a protest against the policies of the central government and a bid to secure more jobs for local populations.

However, the situation has worsened in the past year and Saleh faces his biggest challenge since the country's unification in 1990.

In the north, the government has sent in the army to attack Huthi rebels, a strict Shi'ite Muslim group unhappy with the Sunni influence in the country, especially from Saudi Arabia north of the border.

OPEC kingpin Saudi Arabia has always kept a close eye on developments in its southern neighbor, fearful of infiltrations by extremists across the porous Yemeni border. Riyadh last year provided military support to the Yemeni government against the Huthis, sending jets and tanks to attack rebel posts inside Yemen.

In the once-independent south, where bitterness towards Sana'a is swelling, the military has been involved in clashes with the local secessionist movement seeking a return to the pre-1990 separation of the two states.

Any secession would see Sana'a lose some of its most prolific oil producing regions, as well as the vital port of Aden, its refinery and the Yemen LNG plant, one of the largest LNG facilities in the world.

The 6.7 mt/year Yemen LNG plant, a joint venture with French major Total its major shareholder, is the country's largest ever investment project and was meant to provide a new source of income to replace falling oil exports.

It was not immediately known if the protest had affected foreign oil company operations in the country that lies on the southernmost tip of the Arabian Peninsula.

--Kate Dourian, kate_dourian@platts.com

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