Saudi Arabia Economy Contracts 3.8% Amid Regional Conflict
Saudi Arabia's economy shrank 3.8% in the third quarter as conflict with Iran and Houthi rebels disrupted oil production and exports.
The Government of Saudi Arabia reported a 3.8% year-over-year economic contraction in the third quarter, marking the second consecutive quarterly decline since 2023. Data from the General Authority for Statistics shows the downturn was primarily driven by a 20.4% plunge in oil sector activity. This decline resulted from an eight-month conflict between the United States and Iran, alongside escalating fighting with Houthi rebels.
Regional instability severely impacted energy infrastructure and trade. Shipping restrictions in the Strait of Hormuz disrupted exports, while Houthi missile and drone strikes targeted Riyadh's airport and financial district in October. In response, Saudi Arabia redirected crude shipments through a Red Sea pipeline, although that infrastructure experienced a temporary shutdown in September.
Non-oil activity grew by 1.9%, indicating some resilience in the kingdom's economic diversification efforts. The International Monetary Fund noted that alternative infrastructure and financial reserves have helped cushion the impact. Despite these buffers, Saudi authorities project a 3.6% economic contraction for 2026 and a budget deficit reaching 4.9% of GDP.
