Saudi Arabia’s oil industry initially weathered early Iran war concerns, but Houthi attacks have shifted economic fears to the non-oil sector. Weeks of strikes by Iran-backed militants have claimed dozens of lives, curbed Riyadh air travel, delayed events, and shut the financial district. Saudi stocks slumped to among the month's worst performers in emerging markets.
Economists say it is too soon to quantify the impact, but agree that even higher energy-export revenue will do little to limit the toll on tourism, transport, and foreign direct investment. Mohamed Abu Basha of EFG Hermes notes that disturbing economic stability now threatens the non-oil economy, which comprises over 50% of GDP. The kingdom faces fiscal strain, having increased the 2026 deficit forecast and pulled back from mega projects.
US threats of a new Iran campaign and potential Iranian retaliation raise escalation risks, exacerbating threats to non-oil stability. While Khalid bin Salman planned Tehran talks to defuse tensions, economists brace for non-oil sector impact. With Brent crude near $115, continued exports could yield an additional $11 billion in oil revenue this month and next, potentially narrowing the budget deficit.
Saudi financial buffers and a domestically-driven economy may minimize consequences, though Riyadh is redirecting spending to defense and infrastructure, expecting cuts to diversification projects.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing