The International Monetary Fund on Wednesday said a prolonged Iran conflict could weigh on medium-term growth and investment prospects in Saudi Arabia's economy, which has thus far remained resilient despite the regional conflict.
“The conflict and the ensuing curtailment of maritime traffic through the Strait of Hormuz have disrupted trade, weighing on the oil and non-oil sectors,” Azim Sadikov, the IMF's mission chief to Saudi Arabia, said following the fund's article iv consultations from April 28 to May 13.
“Nonetheless, the Saudi economy is demonstrating agility and resilience,” he said.
The IMF in April slashed its 2026 forecast for Saudi Arabia’s economy by 1.4 percentage points to 3.1 per cent, reflecting a broader downgrade across the Middle East and North Africa. Still, like other oil exporters, Saudi Arabia’s economy is projected to fare better than importers and those more reliant on traffic through the Strait of Hormuz.
With the effective closure of the waterway restricting tanker traffic, Saudi Arabia has been rerouting its supply through the East-West pipeline, which has a maximum capacity of 7 million barrels of oil per day.
The fund said this decision and Saudi Aramco's overseas inventories heave helped offset the drop in oil deliveries.
“The Saudi economy is demonstrating agility and resilience, supported by robust and diversified infrastructure and the authorities’ concerted efforts to redirect shipments and ease logistical bottlenecks,” Mr Sadikov said.
“The main risk is an escalation of the conflict, which could further impair shipping routes, damage energy infrastructure with associated output losses, and heighten uncertainty and financial sector risks,” Mr Sadikov said.
The fund also said Saudi Arabia's low government debt, large reserves and its sovereign wealth fund provide important buffers to help withstand the downside risks the war presents.
“The main risk is an escalation of the conflict, which could further impair shipping routes, damage energy infrastructure with associated output losses, and heighten uncertainty and financial sector risks,” Mr Sadikov said.
“Beyond near-term effects, a prolonged conflict could erode investor confidence and weaken medium-term growth and diversification prospects.”
Opec last month lowered its forecast for global oil demand this year due to the Iran war, joining other forecasters at the US Energy Information Administration and the International Energy Agency. Brent crude futures were last trading at $95.86 a barrel, while US West Texas Intermediate crude was trading at $93.48 a barrel.
A decline in oil sales coincided with the kingdom's budget deficit widening to $33.5 billion in May, a 20 per cent year-on-year increase, according to figures from the Saudi finance ministry, driven by military spending and conflict-related subsidies.
The IMF's annual check-in with Saudi Arabia comes as the kingdom recalibrates its spending strategy under Vision 2030, its long-term diversification programme.
The Public Investment Fund, the kingdom's sovereign wealth fund, has prioritised domestic priorities over its investments abroad, including pulling out of LIV Golf, the breakaway league that once rivalled the PGA Tour.
The PIF said in April that, under its new five year strategy, it would direct roughly 80 per cent of its portfolio into domestic investments and scale back its international exposure from 30 per cent to 20 per cent.
It has also repositioned the $500 billion futuristic city of Neom as a logistics hub, with the development of a new trade corridor connecting European and Gulf markets.
“Given the economy’s resilience so far, the mission considers that a modest reduction in the non-oil primary deficit in 2026 remains appropriate, with spending reprioritization as the first line of action to accommodate any fiscal response to the conflict,” Mr Sadikov said.
The fund said the PIF's recalibrated strategy is a “welcome development”.
