Saudi Arabia economy falls into recession as oil sector slumps amid Middle East conflict

Preliminary data from Saudi Arabia's General Authority for Statistics (GASTAT) show the kingdom's gross domestic product shrank 4.8% year‑on‑year in the second quarter, marking the biggest quarterly decline since the COVID‑19 pandemic. The contraction follows a 24.7% drop in oil‑sector activity from April to June and a cumulative 21.5% fall in the spring months, while non‑oil activity barely grew, rising only 0.6% after a 2.9% increase in the first quarter.

The slowdown is linked to the escalating conflict involving the United States, Israel and Iran, which has repeatedly disrupted shipping through the strategic Hormuz Strait – a conduit for about one‑fifth of global oil supplies. A temporary cease‑fire allowed Saudi oil exports to resume via the Yanbu Red Sea pipeline, but renewed Iranian threats and Houthi attacks keep the corridor at risk.

The International Monetary Fund (IMF) cut its 2026 Saudi growth forecast to 1.7% and projects a recovery to 5.5% by 2027 as maritime traffic normalises. Despite the recession, higher oil prices have partially offset the downturn, with Brent crude reaching $92.70 per barrel.