The Saudi economy can hold out through year’s end—even if oil exports drop to zero

Atlantic Council | Khalid Azim

Recent attacks on Saudi Arabia’s East–West oil pipeline and a Houthi offensive have severely disrupted the kingdom's oil exports, forcing a drop from 10.9 million barrels per day in February to 6.2 million in August. A complete cessation of oil exports through the end of 2026 would cost Riyadh $75 billion.

This extreme stress scenario would expand the fiscal deficit to 7.6 percent of GDP and the current-account deficit to 5.7 percent. Riyadh possesses deep financial buffers. With net foreign assets of $463.9 billion and low sovereign debt at 32.1 percent of GDP, the state can easily finance the shortfall through borrowing or drawing down central government deposits of 414 billion riyals. While Saudi sovereign credit remains resilient, a prolonged export halt would remove four to five million barrels per day from global markets, driving up energy prices and inflation worldwide.

Comment

The vulnerability of the East–West Pipeline to Houthi strike capabilities exposes a critical asymmetry between physical infrastructure security and sovereign financial resilience. While the physical disruption of crude flows to the Red Sea terminal at Yanbu threatens immediate export volumes, Riyadh's fiscal buffer of 414 billion riyals in central government deposits insulates its immediate state expenditures. This financial insulation prevents an immediate contraction in the kingdom's defense procurement budget, which historically supports major Western defense contractors.

Consequently, the prolonged redirection of capital to cover the projected 203 billion riyal fiscal deficit will likely delay non-military capital projects under Vision 2030 rather than degrading the Royal Saudi Land Forces' operational readiness. However, a sustained capital drain of this scale will eventually force a contraction in secondary military modernization programs, specifically slowing the localization goals of the Military Industries Corporation. This shift will preserve immediate frontline procurement from foreign suppliers like Lockheed Martin at the expense of long-term domestic defense industrial autonomy.

Strategic Question for Discussion

If Houthi strikes on the East–West Pipeline persist, how will the resulting fiscal strain alter the balance between Saudi Arabia's direct foreign acquisitions from Lockheed Martin and its domestic localization targets under the Military Industries Corporation?

The trajectory indicates that Riyadh will prioritize immediate operational readiness over long-term industrial sovereignty, maintaining its off-the-shelf procurement of Patriot systems and precision-guided munitions from Lockheed Martin. Consequently, the capital-intensive joint ventures of the Military Industries Corporation are likely to be deferred, slowing the kingdom's target of localizing 50 percent of military spending. This pattern suggests that physical infrastructure vulnerability ultimately reinforces Saudi Arabia's dependency on established Western defense prime contractors.

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