Foreign direct investment into Saudi Arabia fell sharply in the second quarter, underscoring how the U.S.-Iran conflict is undermining the capital flows the kingdom needs to fund its economic transformation.
The numbers behind the pullback
FDI dropped 18% quarter-on-quarter to SAR 22.3 billion, roughly $5.95 billion. That leaves a wide gap to the $100 billion annual target Riyadh has set for 2030 under Vision 2030, a plan designed to shift the fiscal burden off the state and the Public Investment Fund while expanding the private sector.
Credit tells a different story
Domestic bank lending to state-owned enterprises jumped 18.4% year-on-year in August, outpacing private-sector credit growth of 6% by a factor of three. The divergence suggests the banking system is being steered toward public projects just as the Finance Ministry acknowledged the 2026 budget deficit will widen to SAR 245 billion, or 4.9% of GDP, from the SAR 165 billion (3.3%) originally budgeted. The ministry attributed the slippage to higher spending, not a revenue shortfall.
Moody's sees a path, with caveats
Moody's said Tuesday that the February recalibration of Vision 2030, prioritising projects with the strongest returns and capital efficiency, should ease pressure on public finances. Mega-projects such as Neom are being restructured; capital is being directed toward logistics, manufacturing, utilities, digital infrastructure and AI. The agency argues that resequencing and preserving buffers can sustain diversification with fiscal prudence. But it also flags oil-price volatility and export disruptions as key risks, forecasting a 3.3% contraction in real GDP this year.
Oil supply and the strait
At a London forum on Monday, Aramco chief executive Amin Nasser said the war has removed nearly 3 billion barrels from regional supply and that global stockpiles are now "scarily thin." Meanwhile, the conflict has spilled into Yemen. Saudi-backed forces retook Mocha, Dhubab and positions around the Bab el-Mandeb Strait this week, supported by 100 coalition fighter jets flying round-the-clock sorties. The Houthis have answered with missile and drone strikes on Saudi airports, military sites and an Aramco refinery. On Monday, Turkey, Pakistan and Saudi Arabia activated the Mecca Alliance for Defence, signed on 7 August, agreeing to deploy forces to the kingdom in response.