Saudi Arabia Widens Q1 Deficit to $33.5 Billion as 56% Capex Surge Cushions War Shock
Updated
Updated · Semafor · May 14
Saudi Arabia Widens Q1 Deficit to $33.5 Billion as 56% Capex Surge Cushions War Shock
4 articles · Updated · Semafor · May 14
$33.5 billion of first-quarter deficit reflected not just war damage but a deliberate spending push, with Riyadh accelerating investment after the Strait of Hormuz closure hit March oil exports.
Capital expenditure jumped 56%—the biggest first-quarter outlay in at least a decade—while defense spending rose 26% and subsidies increased as the kingdom kept domestic fuel prices steady.
GDP still grew 2.8% in the quarter, with non-oil industries matching that pace and government activity rising 1.5%, suggesting state spending helped steady the economy as private investment hesitated.
Oil revenues fell 3% partly because prices were weaker early in the year and payments lagged, but economists say higher prices and East-West pipeline exports could still leave the full-year deficit below 2025's 5.8% of GDP.
Credit markets showed little alarm: Saudi debt insurance costs fell 3 basis points, and analysts say a Hormuz reopening could lift crude and refined exports to 7 million barrels a day and narrow the deficit to 3.7% of GDP.
If Saudi reserves fall below key thresholds, what immediate risks could emerge for the riyal's peg and the kingdom’s economic stability?
How might the closure of the Strait of Hormuz and rising use of the petroyuan accelerate a shift towards a multipolar global currency system?
Saudi Arabia Faces Doubled Fiscal Deficit in Q1 2026 as Iran War and Hormuz Closure Slash Oil Revenues
Overview
In Q1 2026, Saudi Arabia faced a challenging fiscal environment shaped by rising government spending and the impact of regional conflict. While the country achieved a current account surplus, government expenditures increased sharply, especially in military, security, and essential public sectors. The onset of the Iran war and the closure of the Strait of Hormuz led to a surge in global oil prices, but Saudi oil production and exports dropped significantly, reducing vital revenues. This combination of higher spending and lower oil income drove up the fiscal deficit, forcing the government to seek more borrowing and adjust its economic priorities.