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Three months after the United States and Israel attacked Iran on February 28, 2026, the conflict is at stalemate: The ceasefire that began on April 8, 2026, has neither yielded a political settlement nor an agreement to reopen the Strait of Hormuz to shipping. This state of limbo has disrupted global supply chains and caused other economic strain across the world. For Gulf states that rely heavily on the Strait for exports and imports, the war has exposed severe economic vulnerabilities. Iranian ballistic missiles and cheap, abundant drones have damaged critical infrastructure, hurting investor sentiment and raising insurance costs for shipping. The war’s economic and energy impact has been greatest in Kuwait and Qatar, which currently lack viable alternatives to the Strait of Hormuz for the export of oil and liquefied natural gas, respectively.

Compared to its neighbors in the Gulf, Saudi Arabia is in a relatively advantageous position. The kingdom’s sheer size means that most tourism, cultural, and sporting events can continue despite the war. On April 25, 2026, for example, at a time when many events in other Gulf countries had been canceled, nearly 60,000 fans packed the King Abdullah Sports City stadium in Jeddah for the final of the Asian Champions Football League. Saudi Arabia’s access to the Red Sea and its existing energy transport infrastructure have given the kingdom greater resilience during prolonged disruption. More mundanely, the alternative export and logistical routes offered by Saudi geography make the war less likely to challenge the underlying principles of Riyadh’s economic diversification model. This is especially because prior to the war, the kingdom had already begun to pivot away from the massively expensive real estate ‘giga-projects’ associated with Vision 2030 and toward sectors like artificial intelligence (AI) and renewable energy. The external shock of the Iran war might also serve to boost investment in domestic industry and supply chain resilience, in which case the conflict will have helped speed up policy shifts that were already underway. For Riyadh, the war brings less a new economic direction than confirmation that its earlier decision to adopt fiscal realism was correct.

The Saudi Advantage

The existence of ports and energy facilities on Saudi Arabia’s west (Red Sea) coast and of cross-country infrastructure such as the East-West pipeline and road and rail freight corridors have given the kingdom options to bypass the Strait of Hormuz for significant (although not all) flows of oil and volumes of goods. These are not failsafe alternatives: the capacity of the East-West pipeline cannot fully compensate for the loss of oil shipped by tankers via Hormuz, for example, so exports have fallen by about two million barrels per day (b/d) from prewar levels. A significant portion of refined products and petrochemicals at facilities on the east (Gulf) coast remain shut in by the closure of Hormuz, while oil facilities at the Red Sea terminus of the pipeline are within range of missiles and drones.

The East-West pipeline has enabled the kingdom to maintain a higher proportion of its prewar oil exports than any Gulf state except Oman.

The East-West pipeline has enabled the Saudi authorities to maintain a higher proportion of its prewar oil exports than any Gulf state except Oman, whose ports lie beyond Hormuz with direct access to the ocean. Opened during the Iran-Iraq War in the 1980s, the pipeline has rarely been used to capacity but has proved its value in the present conflict. Its ability to carry seven million barrels of oil per day from the fields in the east (five million of which are destined for export, the remainder for domestic use) far exceeds the capacity of other pipelines in the GCC region. Nevertheless, exports from west coast ports, including oil from Yanbu, remain vulnerable should Yemen’s Houthis resume attacks on Red Sea shipping, in which case the Bab al-Mandab would become a second chokepoint effectively closed for trade. Ironically, the return of oil tankers and maritime services to Saudi Arabia’s Red Sea ports after the Iran war began indicated how the kingdom’s prior concerns about risk, which had soared during the Houthis’ November 2023-September 2025 Gaza war campaign against shipping, were quickly re-evaluated once Iran blocked Hormuz.

With the kingdom’s oil exports remaining at between 60-70 percent of prewar levels, and its economy benefiting from the cushion of oil revenues from prices that soared after the conflict began, it is the secondary and knock-on effects of the Iran war that are more applicable to Saudi Arabia. Saudi Aramco reported a 25 percent increase in first-quarter profit (benefiting from higher export levels in January and February 2026 and then the elevated price levels in March), but an unexpected surge in government spending due to the war meant the budget deficit rose sharply and recorded its highest-ever quarterly deficit. Loss of output from refineries and petrochemical plants, as well as from the fertilizer and aluminum sectors, have hit economic growth. Meanwhile, the drop in oil production will affect natural gas output, which is used in domestic electricity generation. In each case, the impact of the disruption will grow the longer that the standoff with Iran continues and the longer that industrial cities and ports in the Gulf, such as Ras Tanura and Ras al-Khair, are affected, and will be reflected in second quarter results when they come in over the summer.

Impact of the War on Saudi Economic Strategy

More broadly, the Iran war has brought into focus key political economy challenges facing Saudi Arabia as the leadership marked the 10-year anniversary of the launch of Vision 2030 in April 2016 and is reassessing key objectives and policy priorities. This process predates (and is unrelated to) the Iran war and is part of a reallocation of government spending away from mega-projects, such as the futuristic city The Line, the ski resort Trojena in Neom, and the Mukaab skyscraper in Riyadh, which were suspended before the war began.

The suspension of these projects indicates that Crown Prince Mohammed bin Salman and those around him are more receptive to financial constraints and fiscal realities than when the projects were announced in 2021-22. The impact of the war is likely to reinforce this trend. Policy changes already underway prior to February 28, 2026, will continue the shift in focus of Saudi policymaking as Vision 2030 moves into its final phase.

Analysts and commentators paid much attention to the Public Investment Fund’s (PIF) new five-year strategy announced on April 15, 2026, for what it portended about the mood of financial realism in Riyadh amid wartime disruptions. However, the strategic reappraisal—to move away from lavish spending on the giga-projects and toward a more targeted portfolio of investments—was first telegraphed by PIF Governor Yasir al-Rumayyan in late October 2025 and had thus been underway for months before the war. To the extent that the rollout of the PIF plan was initially expected in February 2026, it may have been delayed by the war, but the focus on six main areas and three key themes is little changed from al-Rumayyan’s remarks in October 2025. While the new strategy confirmed the pre-February 28 shift in favor of AI, industrial development and mining, logistics, travel, entertainment, and tourism, the war may cause policymakers in Riyadh to focus even more selectively on infrastructure development and new logistics corridors, such as the repurposing of Neom and its port into an industrial hub far from the Strait of Hormuz and the Bab al-Mandab.

Shedding loss-making projects and tying new investments to domestic economic initiatives may better equip Saudi Arabia to navigate an uncertain postwar landscape.

With this in mind, it is clear that a process of rationalization has already taken place as to which projects will be prioritized and how scarce resources will be allocated, and the war’s disruption may bring into sharper relief which initiatives should continue. Expanding resilience to future shocks (as well as to the ongoing disruption, should it continue significantly) is consistent with the retooling of national priorities before the war, albeit with added urgency. The withdrawal of a planned $200 million funding agreement with the Metropolitan Opera House in New York City, and the likely non-renewal of a three-year deal to host the Women’s Tennis Association’s year-end championship in Riyadh, are indicative of the paring down of deals, as is the decision to pull funding from the breakaway LIV Golf tour, which captured global attention. Shedding loss-making projects and tying new investments more directly to domestic economic initiatives may better equip Saudi Arabia to navigate an uncertain postwar landscape.

Conclusion: Resilience without Resolution

Perhaps the larger conundrum for Mohammed bin Salman revolves around the challenge of converting financial leverage into political influence with a hyper-transactional White House. From almost the day that President Donald Trump returned to the Oval Office in January 2025, the Crown Prince has made pledges of Saudi investment in the US economy a central element of the Saudi-US relationship—and the figures climbed incrementally with the president’s May 2025 visit to Riyadh and Mohammed bin Salman’s November 2025 trip to Washington. It is likely a cause of genuine bafflement in Riyadh, as well as in Abu Dhabi and Doha, that a president who saw for himself the opportunities for the United States of a stable, secure, and prosperous Gulf has been so willing to put all that at risk, first in the 12-Day War in June 2025 and more recently, and at a far greater scale, in attacking Iran without any apparent planning for the aftermath. Saudi officials do not yet appear to have considered drawing back from the United States to consolidate investments domestically, but this may be a card that they will retain should the financial stresses of a long standoff with the Islamic Republic grow more acute.

While the Iran war has exposed vulnerabilities across the Gulf, Saudi Arabia has been relatively buffered from the worst of the disruption experienced in states which lack the Hormuz workarounds or the advantage of territorial depth that offers some insulation from Iranian attacks. The rethinking of Vision 2030 implementation and Saudi investment strategies predate the war but are being sharpened by the impact of the conflict in both its kinetic and stalemated phases, as the fragile ceasefire has lasted longer than the military operations but without diplomatic resolution. As officials had already signaled a change of course as the Kingdom gears up for the final push toward 2030, and then for the four years of projects to prepare for the 2034 FIFA Men’s World Cup, the impact of the war is more an acceleration of trends already underway rather than a major change of course.

The views expressed in this publication are the author’s own and do not necessarily reflect the position of Arab Center Washington DC, its staff, or its Board of Directors.

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