Saudi Arabia's economic growth rate slowed to its lowest level since mid-2024 in the first quarter, as its crucial oil sector was impacted by the war involving Iran. Preliminary data released by the Saudi statistics agency on Thursday showed the kingdom's gross domestic product (GDP) increased by 2.8% year-on-year in the first three months of the year, compared to 5% growth in the previous quarter. The oil sector expanded by 2.3%, down from 10.8% in the prior quarter. Growth in the non-oil sector—an area authorities have emphasized as a priority in their efforts to transform the $1.2 trillion economy—decelerated to 2.8% from 4.3% in the previous quarter.
The figures provide the first detailed insight into the economic impact on Saudi Arabia since the United States and Israel launched a war against Iran on February 28. Iran subsequently retaliated with multiple rounds of strikes against U.S. allies in the Gulf, including attacks on energy facilities inside Saudi Arabia, which disrupted crude oil production and exports. The conflict has brought traffic through the Strait of Hormuz to a near standstill; this chokepoint normally handles about one-fifth of the world's oil shipments.
Saudi Arabia has partially offset the losses by pumping crude through pipelines to the Red Sea port of Yanbu. This has allowed the kingdom to capture some gains from soaring oil prices, which reached a wartime high of $126 per barrel on Thursday.
"Saudi authorities' early response strategy during the crisis has made them more resilient," said Jihad Azour, the International Monetary Fund's director for the Middle East and Central Asia, this month. The IMF projects Saudi Arabia's economy will grow by 3.1% this year, a downward revision of 0.9 percentage points from its October forecast. The Fund noted that Saudi Arabia has been less affected compared to some neighboring countries.
The United Arab Emirates' exit from OPEC after six decades of membership may pose a challenge to Saudi Arabia's economy. The UAE formally left the producer group on May 1, dealing a significant blow to the Saudi-led organization and weakening its ability to influence oil prices by adjusting crude supply. The surprising move culminates years of growing friction between the UAE and Saudi Arabia over crude output policies and competition for regional political influence.
Comments