April 23 (Bloomberg) -- Nagy Ali Mohammed isn't worried about a water shortage in Yemen. He says God will provide what's needed for the craggy, volcanic land where he grows khat, a leaf chewed daily by most Yemeni men.

``There is Allah above,'' the 50-year-old said as a red truck pumped water into his fields. ``There always will be water.''

Yemen will need more than Nagy's faith in the divine to avert a crisis. The Middle Eastern nation's addiction to khat is sucking up scarce water resources. Cultivation of the mild stimulant has increased 13-fold in three decades and now uses 30 percent of the nation's water, according to the World Bank.

Khat is consuming water needed to meet growing demands as the population increases by 3.5 percent annually and people desert the countryside for the city. The capital, Sanaa, won't have enough water for its more than 2 million inhabitants within two decades, said Ramon Scoble, team leader for a water project run by German aid agency GTZ.

``It is not a matter of if it happens anymore, but a matter of when,'' he said.

The water shortage risks exacerbating other challenges faced by the Arabian Peninsula's poorest country, which doesn't have the oil and gas resources of neighboring Saudi Arabia and Oman. A surge in al-Qaeda attacks is driving away tourists. On April 11, the U.S. State Department ordered non-essential embassy employees to leave Sanaa.

Rising commodity prices will accelerate the annual inflation rate to 15 percent this year, the highest in the region, according to an Economist Intelligence Unit report.

Arabia Felix

Called Arabia Felix, or happy Arabia, by the Romans for its abundant natural resources, Yemen now imports as much as 95 percent of its wheat.

``The water shortage is an acute problem,'' said Selva Ramachandran of the United Nations Development Program in Sanaa.

The lack of water is likely to change the landscape of the Islamic nation of 19.3 million. Scoble estimated that as much 40 percent of Sanaa residents will have to relocate within 25 years.

Yemeni farmers pump five times more water than is returned to underground basins each year, according to the Ministry of Water and Environment.

Khat, which Yemenis say brings them clarity of thought and humor, is engrained in the local culture. More than 50 percent of Yemeni men chew the leaf every day, according to a World Bank report published last June. Some spend as much as 6 hours a day chewing baseball-sized wads jammed into their cheeks.

One in seven working Yemeni produce and distribute khat, making it the second-largest source of jobs in the country, the World Bank says. It employs more people than the public sector.

Subsidized Fuel

Khat farmer Nagy Ali Mohammed says he isn't naive enough to say there's no problem, though there's little he can do but pray.

``We get our money from khat,'' he said.

To irrigate khat, farmers have dug tube wells powered by state-subsidized fuel.

The government of President Ali Abdullah Saleh is in a bind. While cheap fuel encourages the over-use of water, reducing the subsidies would make it too expensive for farmers to irrigate their fields, said Mohammed Ibrahim al-Hamdi, deputy minister of water and environment.

``The government talks about conserving water, but indirectly the government subsidizes water extraction through fuel subsidies,'' al-Hamdi said.

In the past, the government tried to prohibit khat use in public offices and excluded khat farmers from receiving loans for irrigation projects. While police are barred from chewing khat on duty, men in green uniforms smile with wads in their cheeks and guns slung over their shoulders as they search for al-Qaeda members on the roads around Sanaa.

``It is a losing battle,'' al-Hamdi said, adding that the government doesn't have the manpower, training or money to fight the drug.

Wells and Water Jars

In As-Sowdah, a village north of Sanaa that has no electricity, Hindia Ahmed treks 500 meters across the parched earth five or six times a day to reach the local well. When the well runs dry, she must descend into the Amran basin by foot or donkey to collect water trucked in by the government.

``It is difficult and hard work carrying water,'' said the 50-year-old woman, with a metal pot balanced on her head. Her black headscarf and green-flowered skirt stand out against the barren landscape. ``I always have a backache.''

Households of 8 to 15 people in villages such as As-Sowdah use as little as 40 to 100 liters a day for cooking, drinking and washing, Scoble said. The World Health Organization says each person should have access to 180 liters of water daily.

Inside Bab al-Yemen, the historical gateway to the Old City of Sanaa and along alleys bordered by stone and baked-brick houses, buying khat is a daily ritual. Men wearing pin-striped suit jackets and skirts, with ornate daggers strapped around their waists, haggle over price and quality.

``Khat is the whiskey of Yemen,'' said Saleh Amid Qalan, a 32-year-old government employee, standing in a passage next to the seventh century Great Mosque, the country's oldest.

To contact the reporter on this story: Glen Carey in Dubai at gcarey8@bloomberg.net

Last Updated: April 22, 2008 17:45 EDT