War restricts Saudi growth but worse expected to come

• GDP fell to 2.8% in Q1
• Oil growth down 8.5 percentage points
• Q2 figures may be worse

The rate of economic growth in Saudi Arabia fell in the first quarter of the year following the US-Israeli war with Iran, but economists warn that the worst could be yet to come.

GDP grew by 2.8 percent in the first three months of the year, according to a flash estimate released by the General Authority of Statistics on Thursday.

It is a marked slowdown from the 5 percent growth reported in the fourth quarter of 2025 and the slowest pace of growth since the start of 2024.

“The impact of the Iran war is very visible,” said Monica Malik, chief economist at Abu Dhabi Commercial Bank. 

Oil growth fell to 2.3 percent, compared with 10.8 percent in the previous quarter, as Saudi Arabia shut some oil wells in response to oil export disruptions.

The Q1 figures showed that “spillovers from the Iran war are taking a heavy toll on the economy”, according to a note put out by London-based data company Capital Economics.

“On the surface at least, the flash GDP figures might not seem too bad given the backdrop of the Iran war,” wrote Jason Tuvey, Capital Economics’ deputy chief emerging markets economist. 

“Crucially, though, these data only capture the first month of the conflict and include two months of data before the conflict began.”

Q2 could be “a lot worse”, he said, while the flash estimate for Q1 could still be revised down as more data filters through. 

The International Monetary Fund has adjusted Saudi Arabia’s overall GDP growth for 2026 down from 4.5 percent to 3.1 percent in light of the war.

Despite the slowdown, economists expect government spending to continue, bolstered by higher oil prices.

“What’s more important for Saudi is government revenue and oil revenue,” said Malik. “We now expect high oil revenues for 2026 and 2027.”

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Real GDP growth figures reflect oil production rather than market prices, which have increased dramatically since the start of the war, with Brent crude approaching $125 a barrel on Thursday for the first time in four years.

While the country’s oil production and oil exports have been reduced since the start of the war, economists say that the impact of this on the Saudi budget will be largely offset by higher prices.

Saudi Arabia’s ability to continue selling oil at those elevated prices should mean an increase in government revenues, Malik said, facilitating more state spending on Vision 2030 development projects.

“With the crisis we expect less of an impact on Saudi Arabia than on other economies,” she said.