Saudi Economy Contraction Hits 4.8% Amid US-Iran War Disruptions

Saudi Arabia's economy suffered its biggest contraction since the COVID-19 pandemic in the second quarter, driven by a 24.7% plunge in the oil sector. The country's gross domestic product shrank by 4.8% on an annual basis during the three months to the end of June.

The US-Iran war and Tehran's retaliatory strikes on Gulf energy infrastructure severely disrupted hydrocarbon production across the region, blocking traffic through the Strait of Hormuz since February 28. This has critically restricted energy exports, with Saudi Arabia facing additional challenges exporting via Bab Al Mandeb.

A recovery is expected to take hold once maritime traffic through the Strait gradually returns to normal, according to the International Monetary Fund (IMF). The IMF projects 1.7% growth in 2026, with non-oil growth easing to 2.6%.