Saudi Arabia, the Middle East's leading oil-rich nation, saw its gross domestic product (GDP) for the second quarter of this year (April–June) decline on a preliminary basis. The Iran war disrupted oil exports that support the Saudi economy.
According to the preliminary figures released by the Saudi statistics authority on the 30th (local time), second-quarter GDP fell 4.8% from a year earlier. Compared with first-quarter GDP growth of 3% year over year, it was a sharp drop and the biggest quarterly decline since the COVID-19 pandemic.
In particular, the oil institutional sector turned from 2.9% growth in the first quarter to a 24.7% decline in the second quarter, dragging down overall growth. Even the non-oil institutional sector, which the Saudi government is fostering as a core strategy for economic diversification, slowed significantly from 2.9% growth in the first quarter to 0.6% growth in the second quarter.
Bloomberg News said, "These figures are the clearest indicator of how much of a burden the U.S.-Israel military operation against Iran, now in its fifth month, is placing on Saudi Arabia, the Arab world's largest economy."
The Financial Times (FT) of the United Kingdom also reported on the preliminary GDP figures, saying, "They show that the months-long war between the United States and Iran is placing a significant burden on the Saudi economy amid uncertainty over when and how it will end."
Saudi Arabia has a high dependence on oil, with estimates putting oil's share of the economy at as much as 40%. But Iran's blockade of the Strait of Hormuz has disrupted exports from Saudi Arabia, the world's largest crude exporter, and even the Saudi economy—long viewed as the Middle Eastern country most capable of withstanding the shock of war—is wobbling.
Saudi Arabia has used a pipeline to the Red Sea port of Yanbu as a workaround route to continue exporting 5 million barrels of oil a day, but volumes have fallen sharply compared with before the outbreak of the Iran war.
Moreover, with Yemen's Houthi armed group, backed by Iran, declaring a maritime blockade against Saudi Arabia in the Red Sea on the 20th, third-quarter GDP growth is likely to decline even more. Peace talks between the United States and Iran—directly tied to reopening transit through the Strait of Hormuz—remain stalled, and Saudi Arabia, alongside the United States, is also engaging in direct military action by striking pro-Iran militias in Iraq.
Ziad Daoud, chief emerging markets economist at Bloomberg Economics, said, "If sea lanes are gradually reopened, it would prevent the Saudi economy from contracting this year," but added, "Considering the possibility that tensions between the United States and Iran will flare again and that attacks by the Houthi rebels and Iraqi militias will continue, that prospect is not high."
Still, some assess that the Saudi economy's resilience remains solid. Earlier, the International Monetary Fund (IMF) said in a report that Saudi Arabia's "solid macroeconomic foundations and diversified oil and logistics infrastructure" supported the economy's resilience amid trade disruptions caused by the war. The IMF projected Saudi economic growth at 1.7% this year, a sharp slowdown from 4.6% last year.