Preliminary government estimates showed Saudi Arabia’s real gross domestic product grew 2.8% in the first quarter, year-on-year, slowing from 3.7% a year ago, as the economic impact of the US-Israeli war on Iran on the world’s top oil exporter becomes apparent.
Tehran’s retaliatory attacks on Gulf states, which have targeted major energy facilities and disrupted shipping through the Strait of Hormuz, which is responsible for around 20% of global oil and liquefied natural gas flows, are having an economic impact.
As a result, economic growth in the Gulf is expected to sharply slow this year, analysts say, with several economies forecast to contract this year, before rebounding in 2027.
Non-oil activities increased 2.8% in the quarter, and oil activities rose 2.3% from the previous year, the General Authority of Statistics data showed. Non-oil activity growth was 5.5% in the same quarter last year.
Growth contracted 1.5% on a quarterly basis, or in the three months to March 31, compared with the fourth quarter, as oil activity fell 7.2% from the fourth quarter while non-oil activity was flat.
Saudi Arabia had started to ramp up oil production in the second half of last year, after lifting voluntary curbs that it had put in place for years to prop up the oil market, but it is expected to be hit less hard by the war than some of its Gulf neighbours, thanks to its ability to re-route some exports and its stronger non-oil industrial production.
The Fund revised down its 2026 growth projection for Saudi Arabia to 3.1%, 1.4 percentage points lower than a January estimate, while a Reuters analyst poll forecast 2.6% GDP growth.
Still, overall economic momentum remains supported by diversification efforts, expanding industrial output, infrastructure investments, and steady domestic demand across non-oil sectors, helping cushion external geopolitical shocks.