Saudi Budget Deficit Narrows on Oil Price Hikes and Redirected Exports

Saudi Arabia's budget deficit has narrowed significantly in the second quarter of this year, despite the ongoing war. The country's reliance on oil exports and higher prices have helped mitigate the effects of the conflict.

With the Strait of Hormuz shut, Saudi Arabia redirected about 5 million barrels per day of oil exports through the East-West Pipeline to the Red Sea port of Yanbu. Higher crude prices have also contributed to the reduced deficit.

The workaround has a single point of failure, however. If both the Bab Al Mandab and Strait of Hormuz were closed simultaneously, the effects would be severe, with over 60% of Saudi exports bound for East Asia and East Africa relying on these routes.

Saudi Arabia is working to diversify its defense partners, with a growing emphasis on domestic production. The country's share of defense spending going to domestic production has increased from 4% in 2018 to 25% by the end of 2024, with a target of 50% by 2030.