IMF Sees Saudi Economy Resilient Despite Middle East Conflict

Saudi Arabia’s economy is expected to remain resilient despite the continuing conflict in the Middle East, with growth forecast to slow to 1.7 percent in 2026 before accelerating sharply to 5.5 percent in 2027, according to the International Monetary Fund’s latest Article IV consultation.

The IMF said Saudi Arabia entered 2026 with strong economic momentum after gross domestic product expanded by 4.6 percent in 2025. Growth last year was supported by the gradual unwinding of OPEC+ production cuts and strong domestic demand in the non-oil economy. Inflation had fallen below 2 percent, while employment remained strong and the banking sector maintained solid capital and liquidity positions.

The conflict and disruption to shipping through the Strait of Hormuz have affected economic activity, trade and oil exports, but the IMF said Saudi Arabia had shown resilience because of its strong economic foundations and diversified oil and logistics infrastructure. The fund expects domestic demand, government spending, employment and ongoing capital projects to support activity during 2026.

One important buffer has been Saudi Arabia’s East-West oil pipeline, known as Petroline. The IMF said the pipeline can move about 7 million barrels of oil per day to Yanbu on the Red Sea, with around 5 million barrels available for export. This allows part of the country’s crude shipments to bypass the Strait of Hormuz.

The IMF said oil companies redirected a substantial portion of shipments through the pipeline during the disruption. Higher oil prices helped offset lower export volumes and provided an increase in oil revenues. The fund also found signs that non-oil activity had begun stabilising in the second quarter after a likely contraction in March.

Saudi Arabia’s banking sector was also assessed as capable of supporting economic activity and absorbing shocks. The IMF said systemic financial stability risks remained low, supported by strong capital and liquidity levels. It praised the Saudi Central Bank’s monitoring of credit growth and asset quality and said banks’ excess liquidity had increased by about 25 percent since the conflict began.

Inflation is expected to rise modestly to 2.2 percent this year as shipping and insurance costs increase, although weaker rental inflation and price controls on some food and fuel products are expected to limit the effect. Higher oil revenues are also projected to reduce the country’s fiscal and current account deficits.

The IMF warned that prolonged disruption around the Strait of Hormuz remains a major risk. Further interruptions could weaken trade, investor confidence and economic growth. A gradual return of maritime traffic to normal levels is expected to support a stronger recovery.