By Aziz El Yaakoubi, Jonathan Landay and Matt Spetalnick
RIYADH/WASHINGTON (Reuters) - The outgoing U.S. administration is to designate Yemen's Houthi movement as a foreign terrorist organization, a move the United Nations warned could undermine peace talks and make it harder to feed Yemenis enduring the world's largest humanitarian crisis.
A leader of the Iranian-aligned group, which has been battling a Saudi-led coalition in Yemen since 2015 in a war widely seen as a proxy conflict between Iran and Saudi Arabia, said it reserved the right to respond.
Secretary of State Mike Pompeo announced the move, which will include sanctions against the movement and three of its leaders, in a statement late on Sunday, hours after Reuters reported it. It will come into effect on Jan. 19, the Trump administration's last full day in office.
"It's clear that the decision is likely to have serious humanitarian and political repercussions," U.N. spokesman Stephane Dujarric told reporters on Monday, urging Washington to swiftly grant exemptions to ensure aid is not disrupted.
Dujarric also said the United Nations was "concerned that the designation may have a detrimental impact on efforts to resume the political process in Yemen, as well as to polarize even more the positions of the parties to the conflict."
U.S. President Donald Trump's administration has been piling on sanctions related to Iran in recent weeks, suggesting to some that the Republican wants to make it harder for Democrat Joe Biden's administration to re-engage with Iran and rejoin the 2015 Iran nuclear deal after he becomes president on Jan. 20.
For Biden to undo the designation would require a lengthy legal review, and he could also face political obstacles from Iran hardliners in Congress.
Yemen's Saudi-backed government called for further pressure on the Houthis, who seized the capital Sanaa in late 2014 and control much of northern Yemen.
Saudi Arabia, which has been attacked by Houthi-launched missiles and drones from Yemen, said the move would "neutralise" the threat posed by the Houthis by depriving them of arms and funds and would bring them back to the negotiating table.
'BANKRUPT U.S. GOVERNMENT'
The Houthis say they are fighting a corrupt system and deny being controlled by Iran. Houthi official Mohammed Ali al-Houthi called the Trump administration's behaviour "terrorist," tweeting: "We reserve the right to respond to any designation..."
An Iranian Foreign Ministry spokesman told a weekly news conference that a "bankrupt U.S. government" was poisoning its legacy and tarnishing the United States' image.
The United Nations is trying to revive talks to end Yemen's conflict, which has driven the poorest state on the Arabian peninsula into an economic and humanitarian crisis, exacerbated by the COVID-19 pandemic.
U.N. Secretary-General Antonio Guterres had warned against a possible designation, saying Yemen was in imminent danger of entering the worst famine the world has seen for decades.
Oxfam America's humanitarian policy lead Scott Paul called Pompeo's move "counter-productive and dangerous".
The Norwegian Refugee Council called for guarantees to ensure sanctions did not prevent deliveries of food, fuel and medicines - which 80% of the population rely on.
Pompeo said the U.S. Treasury would provide licences for some humanitarian activities conducted by non-governmental organizations in Yemen and for some transactions related to exports of critical commodities such as food and medicine.
Relief officials have said licences often fail to reassure banks and insurers they will not fall afoul of sanctions.
U.S. officials had a contentious briefing with congressional staff on Monday in which they were accused of lying to Congress and gave little information on how aid groups would provide food and other necessities to Yemen, congressional aides said.
Administration officials also did not make clear whether such licenses would allow the private sector, which provides the majority of food to Yemen, to keep doing so, the aides said.
One aide said a U.S. Agency for International Development official told those on the call that the move would have a "catastrophic" effect on Yemeni children.
He described the move as "a politically driven decision at the 11th hour ... without any consultation with the incoming administration about an issue that has serious ramifications for the people of Yemen ... and for our ability to help resolve the conflict."
A State Department representative declined comment about the congressional briefing or its internal deliberations.
"The Houthis are an integral part of Yemeni society," said Ryan Crocker, a retired U.S. ambassador who served in the Middle East. "This is making a strategic enemy out of a local force that has been part of Yemen for generations."
(Reporting by Aziz El Yakoubi in Riyadh and Matt Spetalnick in Washington; Additional reporting by Michelle Nichols in New York, Kanishka Singh in Bengaluru, Lisa Barrington, Parisa Hafezi and Hadeel Al Sayegh in Dubai; and by Arshad Mohammed in Washington; Writing by Humeyra Pamuk and Ghaida Ghantous; Editing by Jonathan Oatis and Matthew Lewis)