By Timour Azhari, Federico Maccioni and Yousef Saba
RIYADH, June 3 (Reuters) – When food-tech entrepreneur Sara Amini wanted to see where Gulf businesses were still spending despite the Iran war, she flew to Riyadh.
In Saudi Arabia, she found restaurants full and companies still talking expansion, in contrast to other Gulf economies in Iran’s firing line where the hospitality and restaurant sector had taken a hit.
“When I come to Saudi Arabia I feel like it’s business as usual,” said Amini, who is based in Dubai and manages an artificial intelligence platform that helps food distribution companies digitize operations and cut costs.
It may not be business as usual across the Saudi economy. The International Monetary Fund said on Wednesday that, despite its resilience, growth would be “notably” lower this year – about 2% rather than the 3.1% it forecast in April.
“Beyond near-term effects, a prolonged conflict could erode investor confidence and weaken medium-term growth and diversification prospects,” it said.
But Amini’s optimism is a sign that the country has till now weathered changes brought on by the war better than most others in the region, helped by a strong domestic consumer base and a rerouting of crude oil and logistics to ports on the Red Sea to bypass the Strait of Hormuz.
On Wednesday, a survey showed Saudi Arabia’s non-oil private sector expanded at the fastest pace in three months in May as domestic demand improved and supply chains stabilized, even as business optimism remained subdued.
“The improvement was mainly driven by stronger output and new orders, supported by improving domestic demand and the restart of previously delayed projects,” said Naif Al-Ghaith, chief economist at Riyad Bank, commenting on the survey results.
Walid Hayeck, managing director of FundRock ManCo Saudi, which advises investment funds, said he had even seen “an acceleration of demand for fund establishment in the kingdom and more inquiries from local wealth.”
“Many people are repatriating capital from other GCC (Gulf Cooperation Council) states, probably driven by flight to safety,” he said.
SHIFT IN GRAND VISION
Changes brought on by the war dovetail with a shift in Saudi Arabia’s strategy to diversify away from oil under Crown Prince Mohammed bin Salman’s grand Vision 2030 project to transform society and build up new industries.
When Vision 2030 was launched a decade ago, it included cash-heavy megaprojects, such as a 170-km (106-mile) glass and steel smart city development, The Line, and a ski resort dubbed Trojena, which would have piped desalinated water more than 1,000 metres up a mountain to help produce snow.
The new 2026-2030 strategy, released in April, omits or drastically scales back such projects and focuses on sectors expected to drive returns, such as tourism, industry, AI and logistics, with much of the investment coming from the Public Investment Fund, the kingdom’s sovereign wealth fund.
“When it comes to its project priorities, the war comes at this pivotal moment when the PIF was already looking at recalibrating its investment strategy,” said Justin Alexander, Gulf analyst at GlobalSource Partners and director at Khalij Economics.
Some local firms are seeing gains from the pivot.
“There was a plan for Vision 2030 to inject into logistics, and what is happening today is basically helping or accelerating these targets,” said Abdulrahman Alnamlah, co-founder of Riyadh-based tech platform Sirdab, set up in 2021 to provide access to on-demand storage and transport for small businesses.
Since the start of the war in late February, he says he has been getting calls every day from new customers looking to clear containers from Jeddah and other Red Sea ports and ship goods across the Gulf. That has been facilitated by a Saudi wartime initiative to help reroute Gulf cargo via its Red Sea ports.
Alnamlah’s priority now is to add more staff to his 50-strong workforce to keep up with business growth.
Tourist resorts on the Red Sea, which had previously struggled to fill rooms, are also showing increased demand, mostly from Saudi residents seeking easier or safer breaks.
Hotel occupancy nationwide averaged 66.3% in January to March, according to JLL real estate, up roughly three percentage points year on year. In contrast, Moody’s Analytics projected hotel occupancy in Dubai would drop to roughly 10% in the second quarter, compared with 80% in February.
Tourist numbers in Saudi Arabia, inbound and domestic, rose by 8% in the first quarter of 2026 from a year earlier to 37.2 million – with domestic travel making up for a 13% drop in inbound visitors, according to a Saudi tourism ministry report.
Still, a surge in military and other government spending and a dip in oil revenues meant the kingdom reported a first-quarter budget deficit of $33.5 billion, well above projections.
‘CRITICAL LIFELINE’
A finance ministry spokesperson said the wider deficit reflected a temporary cashflow lag and accelerated investment to mitigate the impact of the conflict.
The kingdom has been targeted by hundreds of Iranian drones and missiles since the start of the Iran war, hitting oil infrastructure and exports due to the effective closure of the Strait of Hormuz.
But rerouting crude to Saudi Arabia’s Red Sea ports to avoid the Strait has provided a “critical lifeline”, according to Amin Nasser, head of state oil giant Saudi Aramco.
While export volumes are down, higher oil prices are helping offset the loss and the outlook is improving, analysts say. “It has become clear that higher oil prices will more than offset the drop in Saudi volumes due to Iran’s blockade of the Strait of Hormuz,” said Monica Malik, chief economist at ADCB.
($1 = 3.7531 riyals)
(Reporting by Timour Azhari, Federico Maccioni and Yousef Saba. Editing by Susan Fenton)
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