Houthi Strikes Shift Saudi Economic Fears From Oil to Everything Else

Summary

• Houthi attacks have killed dozens, curbed Riyadh air travel and shut the capital's financial district.
• Oil exports have recovered to near pre-war levels, with Brent trading around $115 a barrel.
• The non-oil sector, over 50% of GDP, carries Vision 2030 and is now the exposed flank.

The latest

Weeks of sporadic Houthi strikes on Saudi Arabia have claimed dozens of lives, delayed showpiece events and effectively closed Riyadh's financial district, pushing economic anxiety away from crude and onto everything else. Bloomberg reported that Saudi stocks are now among the month's worst performers in global emerging markets, while oil exports have held up. Economists said it is too early to quantify the damage.

Details

• The oil picture: Saudi crude exports have recovered to near pre-war levels and the energy economy continues to show resilience, according to Bloomberg, with Brent trading around $115 a barrel. Tim Callen, a former IMF mission chief for Saudi Arabia, is among those expecting that resilience to hold in the near term.
• The windfall: If exports continue and Brent stays near current levels through November, the kingdom stands to earn an additional $11 billion in oil revenue across October and November combined, said Mohamed Abu Basha of EFG Hermes. He added that could narrow an expected budget deficit of almost 5% of GDP this year.
• The exposed flank: The non-oil sector now accounts for more than 50% of gross domestic product and is the core of Crown Prince Mohammed bin Salman's plan to turn the roughly $1.4 trillion economy into a hub for tourism and foreign direct investment. Abu Basha said tourism, transport and FDI are the bigger concern.
• The stability premium: "The attacks on Saudi take away one of the investment attractions of the past, namely stability in an unstable region," said Callen, now a visiting fellow at the Arab Gulf States Institute. He said escalation in US and Israeli strikes on Iran makes near-term improvement unlikely.
• Fiscal strain: Riyadh has raised its 2026 budget deficit forecast, increased borrowing and pulled back from some mega projects. Bloomberg reported the kingdom has also lifted this year's spending forecast as it directs more money to defense, transport and infrastructure, citing a dozen economists and investors who now expect further cuts to diversification projects.
• Cash flow warning: Bloomberg Economics' Ziad Daoud assessed that the kingdom is cash rich but cashflow poor, and that continued spending risks draining savings built up during past oil booms. Goldman Sachs regional economist Farouk Soussa flagged tightening domestic liquidity, citing slowing bank deposits and recent increases in the Saudi Interbank Offered Rate.
• Markets and credit: The main Saudi equity benchmark is trading near its lowest level since 2021 after two months of sustained losses. Razan Nasser of T. Rowe Price said that without a sustained reduction in security risks, risk premia could rise, though the kingdom retains a debt-to-GDP ratio of about 30% and ready access to capital markets.
• The diplomacy: Defense Minister Khalid bin Salman, the crown prince's brother, was due to hold regional security talks in Tehran on Monday alongside officials from Turkey and Pakistan, as the kingdom and its allies seek to defuse tensions and avert a wider regional conflict.
• Two-front risk: US President Donald Trump has threatened a new campaign against Iran after the November 3 midterm elections, and Tehran is preparing to retaliate against Washington's regional allies. That would leave Riyadh facing the Houthis and Iran simultaneously.

Background

Saudi Arabia is absorbing fallout from Yemen's civil war while already under fiscal pressure. Its buffers remain substantial, and a largely domestic workforce and domestically driven economy may cushion some of the war's consequences, according to Bloomberg.

Between the lines

The $11 billion oil windfall and the slump in equities point in opposite directions, and that gap is the story: higher crude revenue repairs the budget line but does nothing for tourism, transport or foreign investment, which depend on a security reputation rather than a price. Callen argued the outcome hinges on whether a credible post-conflict security plan convinces investors further attacks are unlikely.

What's next

Watch the outcome of the Tehran security talks, the November 3 US midterms and Trump's threatened Iran campaign, Brent's level through November, and whether Saibor keeps rising as deposits slow.

Source: Bloomberg