Saudi Arabia's Q1 GDP Growth Slows to 2.8% Amid Iran Conflict Impact

Saudi Arabia's economy showed signs of slowing in the first quarter, with GDP growth dipping to 2.8% year-over-year, according to preliminary data from the kingdom's General Authority of Statistics. This marks a notable deceleration from the 3.7% growth recorded in the same period last year.

The backdrop to this slowdown includes the ongoing conflict involving Iran, which has rattled the region since late February. Tehran's retaliatory strikes against Gulf states, following U.S.-Israeli military operations against Iran, have damaged crucial energy infrastructure and disrupted maritime traffic through the Strait of Hormuz. This narrow corridor is vital, handling roughly 20% of global oil and liquefied natural gas shipments.

As a result, the Gulf's economic growth faces headwinds, with analysts predicting a sharp slowdown this year. Some neighboring economies are even expected to contract before potentially rebounding in 2027, reflecting the uncertainty sparked by the conflict.

Breaking down Saudi Arabia's figures, non-oil sectors expanded by 2.8%, while oil-related activities grew by 2.3% compared to the prior year. However, non-oil growth is well below last year's Q1 pace, which was 5.5%. Meanwhile, quarter-on-quarter data reveals a 1.5% contraction from Q4 2025, mainly due to a 7.2% decline in oil sector activity. Non-oil growth, by contrast, remained nearly flat during the same period.

Before the conflict, Saudi Arabia had started boosting oil output in the latter half of last year, pulling back voluntary production cuts aimed at supporting the oil market. But the recent disruptions have complicated these efforts, though the kingdom's economic impact may be less severe than that faced by neighboring Gulf states.

Part of Saudi Arabia's relative resilience comes from its ability to reroute exports through alternative pathways, cushioning the blow from disrupted Gulf shipping lanes. Additionally, its more diversified industrial activity outside the oil sector helps offset some of the negative effects.

The International Monetary Fund has taken note of these dynamics, recently lowering its 2026 growth forecast for Saudi Arabia to 3.1%, down by 1.4 percentage points from its January estimate. Meanwhile, market analysts surveyed by Reuters expect GDP to expand by around 2.6% this year, reflecting cautious sentiment.

The unfolding situation raises questions about the Gulf's economic trajectory and the longer-term impact of regional instability on global energy markets. Could other producers step in to fill gaps? How might shifting supply routes affect trade flows and prices? For now, Saudi Arabia's economic pulse reflects the uncertainty rippling out of the ongoing Middle East tensions.