Saudi Arabia’s economy has recorded its biggest quarterly contraction since the Covid-19 pandemic as the US-Iran war weighs heavily on the oil sector.
The country’s gross domestic product shrank by 4.8 per cent on an annual basis during the three months to the end of June, the General Authority for Statistics said on Thursday.
The contraction is in sharp contrast to the 3 per cent growth recorded in the first three months of 2026 by the Arab world’s largest economy. A 24.7 per cent plunge in oil activity drove the April-June quarter economic contraction.
The hydrocarbons sector's contribution to Saudi GDP grew 2.9 per cent on an annual basis during the first quarter of this year, the preliminary Gastat estimate showed.
Non-oil activity expanded only by 0.6 per cent during the second quarter, compared with a 2.9 per cent expansion in the previous quarter.
The quarterly contraction is the most pronounced since the second quarter of 2020, when the Saudi economy shrank 7 per cent at the height of the pandemic that pushed the global economy into recession.
Though the country is focused primarily on expanding its non-oil economic base to cut its dependence on hydrocarbon revenue, crude oil exports still form the backbone of its economy.
The US-Israel war on Iran and Tehran’s retaliatory strikes on the civil and energy infrastructure of its Gulf neighbours have affected hydrocarbon production in the region.
The closure of the Strait of Hormuz has also severely restricted supplies from Gulf energy producers. Saudi Arabia, Opec’s largest oil producer, is also facing challenges to continue exporting oil from its Red Sea port through the Bab Al Mandeb strait.
With no sign of a definitive peace deal on the horizon, the country is likely to face continued economic challenges in the third quarter.
This week, the International Monetary Fund, said the Saudi economy had shown agility and resilience, reflecting strong macroeconomic fundamentals.
Rerouting oil through the East-West pipeline to Red Sea ports has also helped to limit the impact on the hydrocarbons sector.
“A recovery is expected to take hold once maritime traffic through the Strait [of Hormuz] gradually returns to normal,” the IMF said. “Growth is projected to slow to 1.7 per cent in 2026, with non-oil growth easing to 2.6 per cent.”
