Saudi Arabia’s economy contracts 3.8% as war disrupts oil production

Saudi Arabia experienced a 3.8% contraction in its economy during the third quarter, marking the second consecutive quarter of decline, according to preliminary figures from the General Authority for Statistics. The downturn was primarily driven by the Iran-Yemen conflict, which resulted in disruptions to oil production and exports.

Oil sector activity plummeted 20.4% year over year, although this improvement from a 24.8% contraction in the previous quarter indicated some resilience. Meanwhile, non-oil activities expanded by 1.9%, showcasing the strength of certain industries within Saudi Arabia's economic diversification efforts. The economic challenges have been exacerbated by the ongoing U.S.-Iran conflict, which has led to attacks on Gulf energy facilities and restricted access to the Strait of Hormuz.

In response to the disruption, Saudi Arabia redirected crude shipments through a pipeline from its eastern oil fields to a Red Sea terminal, although this pipeline experienced a temporary shutdown in September following additional attacks. Despite these setbacks, the outlook remains uncertain, particularly as fighting between Saudi-led forces and the Iran-backed Houthis intensified in October, causing flight disruptions at Riyadh's airport and affecting major investment events in the capital.

While Brent crude prices have remained above $115 per barrel, the conflict's impact on non-oil businesses is a growing concern. The International Monetary Fund has noted that Saudi Arabia's financial reserves and alternative oil-export infrastructure are helping to mitigate the economic damage, positioning the kingdom more favorably compared to several other Gulf nations.

Saudi authorities had previously forecast a 3.6% economic contraction for 2026, raising their expected budget deficit to 4.9% of GDP.