Saudi Arabia’s economy contracted 4.8% year-on-year in the second quarter of 2026, marking its sharpest decline since the Covid-19 pandemic. 

The setback was mainly driven by a steep fall in oil activity as the ongoing conflict in West Asia disrupted crude production and exports. The oil sector was the biggest drag on the economy, contracting 24.7% during the quarter. 

Oil remains central to Saudi Arabia’s economy, and disruptions to regional shipping routes and energy infrastructure have made it harder for the kingdom to maintain normal export flows.

The slowdown follows 3% year-on-year growth in the first quarter, showing how quickly the impact of the regional conflict has spread to economic activity. While the oil sector struggled, the country’s non-oil economy continued to expand, recording 0.6% growth in the second quarter.

Saudi Arabia has been trying to reduce its dependence on crude through its broader economic diversification programme. However, the latest figures show that oil still has a major influence on overall growth, particularly when geopolitical tensions disrupt production and transportation.

The kingdom has also faced higher pressure on its infrastructure and public finances as it continues spending on development projects and defence. Higher oil prices have provided some support to government revenues, but weaker export volumes remain a concern.

The IMF expects Saudi Arabia’s economic growth to slow to around 1.7% in 2026, before potentially rebounding in 2027 if regional conditions improve.

The latest contraction highlights the wider economic cost of the West Asia conflict. For Saudi Arabia, the challenge now is to protect oil revenues while keeping its non-oil economy growing and maintaining momentum in its long-term diversification plans.

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