Saudi Economy Contraction Hits 4.8% as US-Iran Tensions Disrupt Oil Exports

Saudi Arabia's economy has suffered its sharpest contraction since the COVID-19 pandemic, with a GDP decline of 4.8% year-on-year in the three months ending June. The country's oil sector took the brunt of the hit, shrinking by 24.7% as exports through the Strait of Hormuz were disrupted due to U.S.-Iran tensions.

The crisis left Saudi Arabia's energy infrastructure vulnerable to Iranian attacks, including a critical maritime chokepoint that previously handled one-fifth of global oil shipments. The strait was paralyzed for several consecutive weeks before exports resumed in June following an initial peace accord between the U.S. and Iran.

However, a new threat emerged after the ceasefire collapsed this month, leaving Saudi Arabia to reroute crude oil shipments via pipelines to the Red Sea port of Yanbu. This alternative export corridor now faces additional risks from Yemen-based Houthi militants, backed by Iran, against Saudi ports and shipping lanes.

The International Monetary Fund (IMF) noted that Saudi Arabia is demonstrating agility and resilience, with strong macroeconomic fundamentals and diversified oil and logistics infrastructure supporting the economy.