There is increasing concern at the prospect of an imminent humanitarian crisis in Yemen where the political situation is rapidly deteriorating, with reports over the last few days of fighting on the streets of the capital and roadblocks springing up. Close observers fear a process of economic collapse, which could see desperate hardship among the country's 23 million people.

Traditionally an oil-exporting country, Yemen's foreign reserves – now estimated at around $4bn – are dwindling fast. Its main export, oil, has come to a standstill since the main pipeline was broken five weeks ago, and the government's weak control over large parts of the country mean that it has not been repaired. Yemen is also having to import oil at great expense. So far imports have continued to come in because the central bank is issuing letters of credit. Cooking gas has jumped by 172%.

Over the last few days, power shortages have become longer. Much of the capital, Sana'a, has had little or no power and there are long queues for fuel. The fear is that the country's foreign currency reserves are not sufficient to import the oil needed. The worst impact of fuel shortages will be on water supplies, which depend on pumps or truck deliveries. The price of water has shot up by 50% in the last month, and that was before the worsening violence of the last few days.

Fears about the country's foreign reserves will affect the Yemen's continuing ability to import the food it needs.The vast bulk of the country's food is imported and what arable land there is, much of it has been diverted to grow the more profitable qat crops, the herbal drug. Prices for food staples are rising sharply, with wheat up by 66% in the last month.

"It's a disaster in the making," said one close observer. Andrew Mitchell, the UK development secretary said last week that Yemen was on a "knife edge".

The problem is that the crisis is exacerbating a long-term humanitarian problem of food insecurity. A third of the country is "undernourished" while 2.7 million people are "severely food insecure". In terms of the stunting of child development, Yemen is second only to Afghanistan as the worst in the world; it is third worst in terms of malnutrition. Half of all under five-year-olds are seriously malnourished. The paradox is that it has levels of hunger more often associated with Africa and yet it is an Arab country with some of the richest countries in the world for neighbours.

In addition, fighting in the north of the country in 2009 led to 300,000 people fleeing their homes, and they are still displaced; there are large aid operations already in the country to maintain and feed those living in camps.

There have been repeated efforts to get the international community to develop a longer-term strategy for Yemen, given its declining oil reserves and its rapidly expanding population – which is due to double in the next 30 years. But pledges of funding have repeatedly fallen short, particularly from neighbouring states such as Saudi Arabia, which shares a border with Yemen. The UK has significantly increased its aid to Yemen in its recent aid review, and last week announced more funding to agencies such as Unicef and the World Food Programme, which are preparing contingency plans for a worsening humanitarian crisis. The UK's Department for International Development gives aid to support the country's social protection system, which is still functioning, and some preparation is being done towards how that could be sustained in the event of civil war and economic collapse.

But no one quite knows what economic collapse in the Yemeni context could mean. Unlike African countries that have experienced comparable levels of food insecurity, there is no subsistence agriculture to provide rural communities with some resilience. If Yemen doesn't have the money to buy oil and food, millions of people could tip over a very precarious boundary from food insecure to starving.