Saudi Economy Shrinks Amid US-Iran War Tensions

Saudi Arabia's economy has experienced a significant downturn, with a 4.8% contraction recorded in the second quarter compared to the previous year. This marks the most substantial quarterly decline since the initial phase of the Covid-19 pandemic. The primary driver of this economic shrinkage is the oil sector, which saw a dramatic decrease of 24.7%. This decline is a direct consequence of the ongoing conflict between the United States and Iran, which has effectively disrupted shipping through the Strait of Hormuz.

Despite the severe impact on oil revenues, Saudi Arabia's non-oil sectors demonstrated a positive growth of 0.6% during the same period. This growth reflects the kingdom's sustained efforts towards economic diversification and reducing its heavy reliance on oil. Preliminary data released by the General Authority for Statistics underscore the pressure on the nation's economy amid protracted regional conflict and uncertainty regarding its resolution.

The disruption to maritime traffic, including attacks on tankers in the Bab al-Mandab Strait, has forced a shift in crude export routes. While oil exports remain below pre-war levels, higher oil prices have partially offset the reduction. The IMF projects Saudi Arabia's GDP growth to slow to 1.7% this year, with an expected recovery to 5.5% in 2027 as maritime traffic normalizes.