Saudi GDP slows to 2.8% in Q1 as Iran war hits economy

Saudi Arabia’s economy posted a more moderate expansion in the first quarter of 2026, with the General Authority for Statistics (GASTAT) reporting a 2.8% year-on-year increase in real gross domestic product. The flash estimate, published roughly 30 days after quarter-end, signals a slowdown from the prior-year pace and highlights mixed dynamics between oil and non-oil activity.

Detailed flash figures show non-oil activity contributed the largest share to growth, expanding about 2.8% year-on-year, while oil-sector output rose 2.3% versus a year earlier. On a seasonally adjusted basis, however, real GDP contracted 1.5% quarter-on-quarter, driven primarily by a sharp quarterly decline in oil activities. The data underlines how sectoral shifts are shaping headline growth.

Market commentary and Reuters reporting attribute part of the weaker quarter-on-quarter performance to the regional conflict following the U.S.-Israeli strikes on Iran and subsequent Iranian retaliatory attacks. Disruptions to major energy facilities and shipping through the Strait of Hormuz have elevated logistical costs and insurance premiums, squeezing supply chains and pressuring oil-related output across the Gulf. While Saudi Arabia has some capacity to reroute exports, the broader Gulf region faces a clear near-term growth drag.

The immediate market impact has been reflected in higher oil prices and elevated uncertainty for trade-dependent sectors; however, Saudi fiscal buffers, sizeable sovereign assets and increased non-oil industrial activity provide a degree of resilience. Policymakers will monitor incoming detailed national accounts and sectoral data to assess whether the flash estimate requires revision and to calibrate any fiscal or macroprudential response.

Analysts say outlook hinges on how long disruptions to shipping lanes and energy infrastructure persist. Forecasts from multilateral institutions have already trimmed 2026 growth projections for the region, and investors will be watching whether non-oil momentum can offset oil-sector volatility in the coming quarters. Near-term risks center on commodity-price volatility, trade frictions and reconstruction timelines for damaged energy assets.