Saudi Arabia anticipates a 2026 budget deficit of $44.09 billion (SAR 165.4 billion), a notable reduction from earlier projections. This improvement is primarily attributed to a sharp increase in oil prices due to ongoing geopolitical tensions, specifically the US-Iran war. Total projected expenditures are $350.04 billion (SAR 1.312 trillion), while total revenues are expected to reach $305.89 billion (SAR 1.147 trillion). The government aims to implement development and social projects outlined in the budget, aligning with Saudi Vision 2030, with a focus on citizen well-being.
Despite the improved budget outlook, the Saudi economy experienced a 4.8% year-on-year contraction in the second quarter of 2026, marking its first economic contraction in over two years and the deepest since the COVID-19 pandemic. This decline was largely due to a significant 24.7% decrease in the kingdom's oil activities, impacted by the war in the Persian Gulf and broader geopolitical tensions. Seasonally adjusted real GDP also fell by 4.9% compared to the first quarter of the year, with oil activity contributing negatively by 4.5 percentage points.
In contrast to the oil sector's downturn, governmental and non-oil activities showed resilience, recording annual growth of 0.9% and 0.6% respectively. The decline in oil production was not a controlled market strategy, as seen in 2023, but rather a consequence of external factors, including the US-Iran war which began in February 2026 and affected the Strait of Hormuz. Saudi Arabia has mitigated some disruption by rerouting oil through a pipeline to Yanbu on the Red Sea.
The conflict has led to volatile oil prices. Brent crude futures rose over 8% to above $90 a barrel at one point due to the intensification of the US-Iran war and joint US-Saudi strikes against Iran-aligned groups in Iraq, though prices later retreated. The Strait of Hormuz, a critical shipping route, has seen reduced traffic, but oil continues to flow through alternative channels, reducing Iran's leverage. Saudi Arabia is also seeking to form a coalition to protect Red Sea shipping from Houthi attacks.
