The outbreak of the 2026 U.S.-Israel war with Iran on February 28 highlights the increasingly volatile and unchanging nature of Middle Eastern security in recent years. In addition to the closures of both the Strait of Hormuz and Bab-el-Mandeb, Iran-backed Houthi uprising in Yemen, raising fears of further civil disruptions, as well as bilateral U.S.-Saudi strikes against Iranian insurgencies inside Iraq, regional actors need to ensure that short-term reactions do not inhibit their long-term ambitions. The stakes are especially important for the Kingdom of Saudi Arabia: prolonged war around its borders complicates the kingdom’s attempt to present itself as a stable, global hub for investment, business, and tourism. In other words, regional instability threatens Saudi Arabia’s central objective of diversifying its economy away from oil.
Vision 2030 Under Regional Pressure
On April 25 2016, Saudi Arabia’s de facto ruler Crown Prince Mohammed Bin Salman announced historic plans to redevelop a global and sustainable economy. Known as Vision 2030, the strategic framework combines economic reorganisation with historic social liberalisation reforms in an attempt to rebrand Saudi Arabia as a safe and hospitable global actor. Vision 2030 aims to diversify the petrostate away from oil revenue, which between 2022 and 2024 accounted for an average of 63 per cent of total government revenue [5]. While down from 88 per cent in 2014, Saudi Arabia understands that ensuring long-term prosperity for its citizens necessitates further reducing dependency on volatile oil exports, especially in face of continued global energy transition, decarbonisation, and environmental concerns.
The Public Investment Fund (PIF) is Saudi Arabia’s central investment engine that strategically allocates oil revenue into various domestic and international sectors. The PIF manages over $900 billion in assets under management across both domestic and foreign major investments such as equity of Uber, Lucid, and more recently Electronic Arts (EA) Sports; the sovereign wealth fund even doubled its net profits in 2025 [7]. Unfortunately it might be difficult for Saudi Arabia to maintain this growth under current circumstances. Regional conflict around Saudi Arabia’s borders and coastlines have affected all industries which Saudi Arabia has taken a costly bet on to lead their future. Saudi tourism, one of Vision 2030’s most hopeful aspirations, fell by 5 per cent% to 6 per cent% in the first five months of 2026 compared to last year, linked to increased traveling cost and perceived risk [3]. In addition with the added complexity of conflict-related flight disruptions affecting broader international accessibility, global events such as the Esports Nations Cup in Riyadh or the F1 Jeddah Grand Prix in Jeddah have been postponed and canceled. This delays both commercial returns expected from substantial initial investments, and also weakens investor confidence necessary for sustaining diversification efforts. This is particularly damaging because PIF funding alone cannot fully create a sustainable non-oil economy.
The Kingdom targets annual foreign direct investment inflows of SAR388 billion (EUR88.4 billion) by 2030 [8]. Vision 2030’s Regional Headquarters Program (incentivising big corporations to establish their regional base in Riyadh to qualify for government contracts) has successfully attracted multinationals such as Google, Microsoft, Amazon. By early 2026, “more than 700 multinational companies had relocated their regional headquarters to Riyadh” [6]. However political instability may undo the provision of foreign investment, inflow of experienced and skilled labour, and the training of local workers that regional headquarters relocation enables. Continued airspace disruptions, increased oil market volatility, and threats to infrastructure such as Iran’s bombing of Aramco’s Ras Tanura refinery on March 2 raise operating, security, and insurance costs. Persistent instability therefore not only threatens immediate tourism and event revenue, but also foreign capital and investor confidence needed to transform PIF-backed projects into self-sustaining industries. Crucially, if private investment retreats, the financial burden will return to the Saudi state, and ultimately to the oil revenue from which Vision 2030 is trying to escape from in the first place.
Oil Market Disruption: Profiting From Instability
On the other hand, a comparison between Saudi Arabia’s recent GDP growth and its oil revenues highlights how overall higher oil market volatility and supply chain disruptions are not entirely damaging to the Kingdom and its objectives. While current projections estimate that GDP shrank by 4.8 per cent in Q2 2026 (the sharpest contraction since the Covid-19 pandemic) Aramco recently reported an increase of 33 per cent in profits compared to last year [1]. To unpack this contradiction we must understand how decreased total oil production and sale volume affect GDP growth, while oil prices affect Aramco and government revenue.
Whilst the Strait of Hormuz prevented the UAE, Bahrain, Qatar, Kuwait, Iraq, and Iran from temporarily exporting their oil through periods of conflict, Saudi Arabia benefits from increased economic resilience [4]. The East-West oil pipeline (which crosses through Saudi Arabia from the Persian Gulf to the Red Sea) provides an alternative for oil export through the Yanbu Red Sea Port. This means that as global oil supply shrank, Saudi Arabia benefited from increased prices, with the average price of sold crude oil per barrel increasing from $66.7 in Q2 2025 to $108.1 in Q2 2026 [2]. While this situation highlights how non-oil industries are not yet developed enough to support the Kingdom during times of economic uncertainty, Saudi Arabia’s economy still being dependent on oil revenue in the short-term ultimately helps realise Vision 2030 and its long-term ambitions as today’s higher oil prices and Aramco profits help sustain continued investment into non-oil industries.
Financing Diversification ≠ Achieving Diversification
Regional conflict therefore presents Saudi Arabia with a paradox. As higher oil prices and Aramco profits provide a temporary financial cushion, the same geopolitical instability weakens tourism, business confidence, and foreign investment on which economic diversification depends. At the same time, while oil wealth can finance new mega-projects and industries, it cannot independently ensure their commercial sustainable and long-run profitability. Similarly, oil wealth alone cannot persuade tourists and businesses to overlook persistent regional risks. Hence the Kingdom’s long-term economic success will therefore depend not on how much oil revenue it can squeeze out and redirect to continue diversification efforts during times of conflict, but on whether its non-oil economy can eventually independently and self-sustainably attract investment, generate meaningful returns, and withstand instability and market volatility without state support.
Edited by Adrian Kai Fraile Itagaki.
References
[Cover picture] AdmiralFox. (2018, November 21). Oil rig, industry, oil [Photograph]. Pixabay. https://pixabay.com/photos/oil-rig-industry-oil-3820929/
[1] Alias, Afiq Fitri. “Reuters Breakingviews.” Aramco’s profit boom rests on fragile status quo, 2026, https://www.breakingviews.com/columns/breaking-view/aramcos-profit-boom-rests-fragile-status-quo-2026-08-04/. Accessed 20 08 2026.
[2] Aramco. “Key Financial Results.” Aramco announces second quarter and half year 2026 results, 2026, https://www.aramco.com/en/news-media/news/2026/aramco-announces-second-quarter-and-half-year-2026-results. Accessed 20 08 2026.
[3] Azhari, Timour , et al. “Saudi tourism down 5%-6% so far in 2026 because of Iran war, minister says.” Reuters, 2026, https://www.reuters.com/world/middle-east/saudi-tourism-down-5-6-so-far-2026-because-iran-war-minister-says-2026-06-18. Accessed 18 August 2026.
[4] Callen, Tim. “Arab Gulf State Institute.” Saudi Arabia Weathers the Iran War Thanks to Investments in “Economic Resiliency”, 2026, https://agsi.org/analysis/saudi-arabia-weathers-the-iran-war-thanks-to-investments-in-economic-resiliency/. Accessed 20 08 2026.
[5] Callen, Tim, and Justin Alexander. “Aramco and the Saudi Government Budget.” AGSI, July 2025, https://agsi.org/analysis/aramco-and-the-saudi-government-budget.com. Accessed 18 August 2026.
[6] Mosalam, Bandar. “Business.” Saudi Arabia allows contracting exceptions for firms without regional HQ, 2026, https://www.arabnews.com/node/2633989/business-economy. Accessed 20 08 2026.
[7] Saudi Gazette. “Saudi Gazette: Business.” PIF’s 2025 annual report explained: What the numbers reveal about its growth and Saudi economy, 2026, https://saudigazette.com.sa/article/663849/business/pif-2025-annual-report-explained-key-numbers-and-achievements. Accessed 19 8 2026.
[8] Tine, Dayan Abou. “Business.” Saudi Arabia’s FDI inflows rise on adoption of international calculation standards, 2024, https://www.arabnews.com/node/2461756/business-economy. Accessed 20 08 2026.
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