In early 1921 the Spanish army commenced an offensive into north-eastern Morocco from the coastal regions previously held. The advance took place without the extended lines of communication being adequately established or the complete subjugation of the areas occupied.
On July 22, 1921, after five days of siege, Spanish forces garrisoning the encampment of Annual under the command of general Manuel Fernández Silvestre after the contiguous position of Igueriben had fallen, were attacked and destroyed by the Riffi irregular forces under the command of Mohammed Ben Abd el-Krim El Khattabi, a former functionary of the Spanish administration in the Office of Indigenous Affairs in Melilla and one of the leaders of the tribe of the Aith Ouriaghel (known as 'Aith Urriaguel' in Spanish).
General Silvestre disappeared and his remains were never found. The over-extended Spanish military structure in the Western Spanish Protectorate in Morocco crumbled. More than twenty Spanish posts were overrun and their garrisons massacred. At Afrau on the coast Spanish warships were able to take off the garrison and at Zoco el Telata de Metalsa in the south Spanish troops and civilians were able to retreat to the French Zone.
The surviving Spanish troops retreated some 80 km to the encampment of Monte Arruit where a stand was attempted under the command of General Felipe Navarro y Ceballos-Escalera. This position was however surrounded and cut off from supplies. Accordingly, General Dámaso Berenguer Fusté, Spanish High Commissioner in the protectorate, authorized surrender on August 9. Nonetheless, the Rifeños did not respect the conditions of surrender and killed many of the refugees within the fort. General Navarro, along with some six hundred others was taken prisoner.
Melilla was only some 40 km away, but was in no position to help: the city itself was almost defenceless and lacked properly trained troops. The refusal of the adjoining tribe of Beni Sicar to join Abdelkrim (and perhaps some luck) saved Melilla.
Spain quickly assembled elite units of the Army of Africa which had been operating south of Tetuan in the Western Zone and had not accompanied Silvestre's forces in the advance to Annual. These mainly comprised the newly raised (1920) Spanish Legion and Morrocan Regulares. Transferred to Melilla by sea these reinforcements enabled the city to be held and Monte Arruit to be retaken by the end of November.
The Spanish lost more than 20,000 soldiers. Rifeños dead are estimated at about 1,000. Materiel lost by the Spanish included more than 20,000 rifles and 400 machine guns and 129 cannons.
The political crisis brought about by this disaster led Indalecio Prieto to say in the Congress of Deputies: "We are at the most acute period of Spanish decadence. The campaign in Africa is a total failure, absolute, without extenuation, of the Spanish Army."
The Minister of War ordered the creation of an investigative commission, directed by the honored general Juan Picasso González, which developed the report known as the Expediente Picasso, which, despite calling out numerous military mistakes, owing to the obstructive action of various ministers and judges did not go so far as to lay political responsibility for the defeat, which popular opinion widely placed upon King Alfonso XIII, who according to several sources had encouraged Silvestre's irresponsible penetration of positions far from Melilla without having adequate defenses in his rear.