Saudi Arabia’s war economy is catching up with Vision 2030
The kingdom’s oil lifelines are under fire just as its grandest projects meet the limits of the Saudi treasury.
When Saudi Crown Prince Mohammed bin Salman (MbS) unveiled Vision 2030 on 25 April 2016, he promised to make Saudi Arabia less dependent on oil. The plan called for the private sector’s share of GDP to rise from 40 to 65 percent, non-oil revenue to climb from roughly 163 billion riyals to 1 trillion, and the Public Investment Fund (PIF) to grow from around 600 billion riyals to 7 trillion. Vast projects would carry the kingdom into a new economic era.
The announcement came a year after the Saudi-led war on Yemen began, with MbS serving as defense minister. A decade later, that war remains unresolved and the most ambitious targets of Vision 2030 remain out of reach.
His subsequent policy of easing regional crises, including rapprochement with Iran and talks over Yemen, has come under renewed strain since the US-Israeli war on Iran began in February 2026. Saudi territory’s role in the US campaign, alongside the stalled Yemen road map and Riyadh’s continuing pressure on its southern neighbor, has brought the costs of confrontation back into focus. Riyadh had counted on quiet borders and open sea lanes to underwrite its vast building program. It now has neither assurance.
The megaprojects meet their limits
The strain on Vision 2030 predated the regional war. Rising construction and financing costs, uncertain returns, and foreign investment that has fallen short of expectations forced Riyadh to reconsider the pace and scale of its biggest projects.
Many were conceived on the assumption that state spending would draw in enough private capital to keep construction moving and eventually produce a return. That capital has proved harder to secure at the necessary scale.
Work on the Mukaab, the giant cube at the center of Riyadh’s New Murabba development, was halted for a reassessment of its financing and feasibility. NEOM has faced a wider review, including scaled-back plans for The Line and delays to other industrial and tourism projects.
Sindalah island closed shortly after its 2024 opening, with no clear reopening date. A planned $1.5 billion railway in Tabuk was canceled after substantial spending, prompting a compensation dispute. NEOM has reportedly put the cost of terminating contracts over 2026–2030 at about $16 billion as it realigns its spending.
War tightens the fiscal vise
The war then disrupted traffic through the Strait of Hormuz, raising shipping and insurance costs and complicating Saudi oil exports. In revised figures for the second quarter of 2026, the General Authority for Statistics reported that GDP contracted 4.7 percent year on year as oil activity fell 24.8 percent. Non-oil activity grew just 0.9 percent.
Public finances entered the second half with much less room than Riyadh had planned. The 2026 budget projected revenue of 1.147 trillion riyals against expenditure of 1.313 trillion, leaving an expected deficit of 165 billion riyals. The first-half deficit approached 160 billion riyals, nearly the full-year target.
Higher oil prices could not fully compensate for lower export volumes and the growing cost of getting crude to market. The kingdom’s financing needs rose sharply as it borrowed to cover the deficit and refinance maturing debt.
Those obligations cannot be deferred as easily as a construction timetable. Spending plans and payment schedules also came under pressure, making the question of which projects receive priority more urgent for a government still committed to its 2030 deadline.
The squeeze has reached businesses. During the first eight months of 2026, 489 Saudi companies reportedly entered bankruptcy or related proceedings, 70 of them in August. Plans to sell stakes in state-owned companies, an important source of funds for new investment, have faced a more difficult market.
The mounting bill for air defense
The war has imposed a further burden on the Saudi budget as Riyadh defends airspace, installations, and infrastructure, fires costly interceptors, and replenishes stockpiles. Those costs continue long after an incoming drone or missile has been destroyed.
Saudi figures cited in regional reporting counted 518 drones and 38 missiles intercepted between 28 February and 22 March. A rough calculation, assuming a Patriot interceptor for every drone and two for every ballistic missile, puts the defensive bill at about $2.2 billion against an estimated $72 million for the incoming weapons.
That calculation is not an audited Saudi expenditure and cannot establish which systems were actually fired. It does, however, indicate the cost imbalance facing a state heavily reliant on imported air defenses. Repairs, maintenance, and replacement missiles add to the expense.
Riyadh has sought new supplies, reportedly approaching Japan about Patriot missiles and asking South Korean manufacturers Hanwha and LIG Nex1 to accelerate air defense deliveries. Washington has approved a possible $1.96 billion sale including up to 10,000 APKWS guidance units. Saudi Arabia has also sought defensive support from France, Britain, Pakistan, and Egypt as pressure on its stocks has grown.
Saudi military expenditure reached $83.2 billion in 2025, making it the world’s eighth-largest spender, according to SIPRI. Finance Ministry figures put first-quarter 2026 military spending at around $17.2 billion, up 26 percent on the same period a year earlier.
Yemen returns to the Saudi oil equation
Pressure from Hormuz was already testing the kingdom’s export system when its confrontation with Yemen’s Ansarallah-aligned armed forces (YAF) intensified. Riyadh now faces threats along the Red Sea route on which it had relied to bypass the bottleneck in the Gulf.
After Sanaa announced a blockade of Saudi-linked shipping in July, its forces advanced along Yemen’s western coast toward strategic positions near Bab al-Mandab. The number of vessels using the strait reportedly fell from around 50 a day before the blockade to about 32, further narrowing the route for Saudi crude.
Kpler data reportedly show Saudi crude passing through Bab al-Mandab at more than 3.5 million barrels per day (bpd) in early July, then dropping steeply from mid-month and approaching zero in August. Reported inventories rose from roughly 61 million to 75 million bpd, consistent with crude accumulating faster than available routes could carry it away.
Retaliatory attacks on oil infrastructure compounded the shipping squeeze. The Jazan Refinery and Saudi-linked tankers in the Red Sea came under threat, while the kingdom’s East–West Pipeline, the main route from its Eastern Province to the port of Yanbu, was struck by drones in September.
Saudi officials attributed the pipeline attack to a resistance faction in Iraq; other reporting has linked attacks on the route to Ansarallah. The disruption halted Yanbu loadings, and Aramco began restarting the line around 22 September after roughly 11 days of interruption.
The costly detour north
With the southern passage constrained, Riyadh also used a northern route through Egypt: crude could travel from Yanbu to Ain Sokhna, cross the SUMED Pipeline, and be loaded again at Sidi Kerir. That kept a path to European buyers open but required additional handling and capacity that the direct passage through Bab al-Mandab did not.
It offered little relief for cargoes bound for Asia, which faced the much longer voyage around the Cape of Good Hope. Each detour cut into the benefit of higher prices by raising the cost of delivery.
Saudi Arabia tried to limit the damage by redirecting crude toward Europe, adjusting official selling prices, and using ship-to-ship transfers off Sohar, Oman. None of these measures could fully replace the volumes moved along its established routes.
The disruption was visible in August oil flows. The International Energy Agency (IEA) estimated Saudi crude supply at roughly six million bpd, down 2.3 million from July, while other estimates put output closer to 6.2 million.
Crude exports fell to around 3.1–3.2 million bpd, their lowest level in more than a decade. These are estimates from different measures of production, supply, and loadings, rather than a single official series.
Higher freight and insurance costs have also weighed on the non-oil economy. In July, the International Monetary Fund (IMF) projected Saudi growth of 1.7 percent for 2026, down from 4.6 percent in 2025, warning that prolonged shipping disruption would further hurt trade and confidence.
The Yemen front has brought the war home to Saudi Arabia’s export corridors and public finances just as Vision 2030’s largest projects are being delayed or scaled back. Riyadh can borrow, reroute cargoes, and reorder its spending, but each measure carries a cost.
The longer the fighting lasts, the harder it becomes to fund the economic transformation MbS promised while defending the routes on which it still depends.