Saudi Arabia’s deficit widens to $33.5 billion as oil revenues slip and Hormuz crisis drives spending surge

Saudi Arabia’s fiscal position has sharply deteriorated, with the kingdom posting a budget deficit of $33.5 billion (125.7 billion riyals) in the first quarter of 2026, its widest shortfall in nearly eight years, amid falling oil revenues and a surge in government spending linked to regional tensions.

Data released by the Saudi Ministry of Finance shows total expenditure jumped 20 per cent year-on-year to 386.7 billion riyals, significantly outpacing revenues of 261 billion riyals. The widening gap marks a stark departure from Riyadh’s earlier projection of a full-year deficit of just 65 billion riyals ($17 billion), underscoring the growing fiscal strain.

At the heart of the pressure is a decline in oil income, which slipped 3 per cent year-on-year to 144.7 billion riyals. The drop comes as shipping through the Strait of Hormuz, one of the world’s most critical energy corridors, has effectively stalled amid escalating tensions linked to the Iran conflict. The disruption has hit crude flows, even as Saudi Arabia reroutes some exports via its East-West pipeline to Red Sea terminals.

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The kingdom, which relies on oil for more than half its revenues, is now facing a dual shock: weaker inflows and sharply rising outlays.

Spending spikes were broad-based. Outlays on economic resources surged 52 per cent year-on-year, while general expenditures rose 46 per cent. Military spending climbed 26 per cent to 64.7 billion riyals, reflecting heightened security costs as geopolitical risks intensify. Infrastructure spending also posted a 26 per cent increase.

Non-oil revenues offered limited relief, rising just 2 per cent to 116.3 billion riyals, highlighting the slow pace of diversification efforts under Vision 2030 in cushioning oil shocks.

The deficit has more than tripled since mid-2025, signaling a rapid fiscal deterioration. Analysts warn that the full financial impact of the Iran war and the prolonged disruption in maritime trade has yet to be fully captured in the Q1 data, with deeper stress likely to emerge in the current quarter.

Compounding uncertainty, US President Donald Trump briefly launched, and then quickly suspended, a military initiative aimed at reopening the Strait of Hormuz, indicating fragile and fluid geopolitical dynamics that continue to cloud the kingdom’s economic outlook.

With oil markets under strain and spending commitments rising, Saudi Arabia may be forced to lean more heavily on debt markets or tap reserves if the crisis persists, testing the resilience of its fiscal reform agenda.