Saudi Arabia's gross domestic product shrank 3.8% on year in the third quarter as the Arab region's largest economy struggled to contain the fallout from the Iran war--even before the latest escalations with Yemen's Houthi militants.
The General Authority for Statistics said Sunday that real GDP in the last quarter was weighed down by a 20.4% decline in oil activities compared with the same period in 2025.
The figures represent a slight slowing from the second quarter's 4.7% on-year contraction, but since they only capture the period up to Sept. 30, some of the most recent flare-ups with the Iran-aligned Houthis aren't reflected in the data. Attacks on civilian airports and other critical infrastructure have resulted in civilian casualties and severe travel disruptions across the kingdom.
Non-oil activities rose 1.9% when compared with the same period in 2025, which the country has long hoped would become a key pillar of Saudi growth as part of its Vision 2030 model.
For years the hydrocarbon-exporting Gulf Arab states--including Saudi Arabia, the United Arab Emirates, and Qatar--have sought to diversify their economies away from oil and gas. But oil activities still had the biggest impact on dragging down GDP figures in Saudi Arabia.
Limited ability to influence oil revenues, as well as Saudi Arabia's reluctance to cut public spending leaves it with limited fiscal policy options and could pave the way for taxes on residents in the future, said James Swanston, Middle East and North Africa economist at Barclays Bank.
It would be politically unpalatable for the Gulf state to cut spending despite its sizable public-sector wage bill, the economist said. "If Saudi can't cut spending or do much with oil revenues, it leaves them with non-oil revenues and taxation as the main function of fiscal policymaking," he added.
Saudi's headline stock index, the Tadawul All-Share, fell 0.8% on Sunday.
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