Saudi Economy Contracts by 4.8% Amid Iran War and Strait Closure

Saudi Arabia's economy contracted by 4.8% in Q2 due to the five-month war in Iran, which led to a near-total closure of the Strait of Hormuz.

The kingdom's largest yearly economic contraction since the height of the COVID-19 pandemic in 2020 was driven by a 24.7% year-on-year decline in its oil sector for the April 1 to June 30 period, according to data from the Saudi General Authority for Statistics.

Hydrocarbons account for around 55% of Saudi government revenue, so the steep decline in oil activity outweighed modest growth in non-oil and government sectors. Non-oil activities grew by 0.6%, while government activities increased by 0.9% during this period.

The US-Israel-Iran war on February 28 led to rerouting of over 70% of Saudi crude oil exports to the Red Sea port of Yanbu, but even this alternative route has not allowed Saudi Arabia to export as much oil as before the war.