Because of the Iran war, Saudi Arabia has fewer barrels of oil to sell but receives more money for every barrel it does sell. Attacks on energy facilities and the Strait of Hormuz and threats to Red Sea shipping have cut output and made exports more complicated. At the same time, the government must protect critical infrastructure to keep its Vision 2030 economic development program on track. On August 31, 2026, the National Debt Management Center reportedly contacted banks to arrange a loan of at least $8 billion. Saudi Aramco is in separate talks with lenders. Both talks are still at a very early stage.
Second-quarter figures show the cost of the war. Saudi Arabia’s General Authority for Statistics said oil activity decreased 24.7 percent from a year earlier. The decline left real gross domestic product 4.8 percent lower, its deepest contraction since the pandemic. Non-oil activity expanded only 0.6 percent. A decade of diversification has given some protection to the economy, but tourism, logistics, construction, and technology cannot substitute for oil when production falls by almost a quarter.
Attacks on energy facilities and the Strait of Hormuz and threats to Red Sea shipping have cut output and made exports more complicated.
High oil prices helped, although not enough to close the budget gap. Government revenue reached 338.8 billion riyals [$90 billion] in the second quarter, against expenditures of 373 billion riyals. Riyadh, therefore, recorded a deficit of 34.3 billion riyals, or $9.1 billion. This was smaller than the $33.5 billion deficit posted in the first quarter. Still, the kingdom borrowed to finance its entire first-half shortfall instead of drawing on reserves. That decision protected its cash holdings but increased the amount it must repay later.
The possible $8 billion loan is not an isolated transaction. Saudi Arabia entered 2026 expecting nearly $58 billion in financing needs, including debt repayments and the projected annual deficit. This year, the government has already raised about $6 billion through bonds, Aramco has secured another $4 billion, and the Public Investment Fund raised $7 billion in May 2026. A bank loan offers Riyadh another source of money if unstable markets make a public bond issue expensive. But borrowing by all three institutions also shows how closely the government, Aramco, and the Public Investment Fund depend upon one another.
Defense spending makes the calculation harder. Saudi military expenditures jumped 26 percent from a year earlier in the first quarter, reaching 64.7 billion riyals [$17.2 billion]. Riyadh has had to intercept missiles and drones, protect ports and oil installations, and strengthen routes that bypass the Strait of Hormuz. Even if the fighting eases, it will need to replace interceptors and repair or reinforce vulnerable infrastructure. Those bills compete with housing, transport, subsidies, and development projects.
That does not mean Vision 2030 will fail. It does mean Riyadh must decide which parts deserve protection. The Public Investment Fund had already started moving away from expensive real estate projects and toward logistics, mining, artificial intelligence, and religious tourism. Its 2026–2030 strategy places more emphasis on financial returns, investment discipline, and private sector participation. Wartime conditions make that approach more urgent. Pipelines, ports, storage facilities, domestic manufacturing, and reliable power networks can support economic growth while reducing the kingdom’s exposure to another blockade. Projects that require years of spending before producing revenue will be harder to defend.
Saudi Arabia remains in a stronger position than many countries facing a comparable shock. The International Monetary Fund cites its relatively low government debt, large reserves, and substantial sovereign assets. The East-West Pipeline and Red Sea terminals allowed Aramco to reroute some exports, and its overseas inventories helped maintain deliveries to customers. Without those investments, the Hormuz closure would have caused much greater damage.
Iranian strikes have shown the value of U.S. intelligence, missile defense and military coordination.
But those advantages do not make continued borrowing safe. The International Monetary Fund expects government debt to climb to nearly 44 percent of gross domestic product by 2031. If the war continues, investors might want higher returns to compensate for regional risk. Higher government borrowing could also soak up domestic liquidity and increase the cost of financing for private companies. There is no immediate debt crisis looming for Saudi Arabia. The more likely risk is a gradual fiscal squeeze that puts projects on hold, shrinks subsidies and forces Aramco to keep paying large dividends.
Washington will also consider options with Riyadh. Iranian strikes have shown the value of U.S. intelligence, missile defense and military coordination. They have also sowed Saudi doubts about whether American protection can stave off attacks or keep major trade routes open. Riyadh will push for stronger security commitments and oppose U.S. policies that foment unrest around the Persian Gulf. Another aspect of that relationship is its access to U.S. banks and dollar markets. Defense agreements, energy security, weapons purchases, and financing can no longer be considered separate issues.
Saudi Arabia can withstand the current pressure, but only if it defines its priorities. High oil prices and spare financial cushions bought time, not a return to business as usual. Riyadh must spend more on security while funding an economic program designed for more stable times.
