Saudi Arabia is signaling to markets that its balance sheet can easily absorb the shock of a regional war. The Finance Ministry maintained in a statement to Reuters that the Kingdom’s fiscal position is “solid” and economic activity is running normally.

The Red Sea hedge: Energy export infrastructure remains “resilient” and flexible, the statement said. The ministry pointed to its backup plan as markets are sweating over the Strait of Hormuz bottleneck, highlighting it has access to multiple export routes, including the Red Sea.

The blank check warning: “We also re-state that there is no price tag for defending our people and our country,” the statement said, signaling that all budget caps will be off if the conflict breaches Saudi borders.

Why it matters

The immediate math is working in Riyadh's favor. Global oil prices have spiked 20% since the conflict erupted and are already past the USD 90 mark, acting as a natural hedge against the drop in export volumes. Aramco reportedly hiked the price for its flagship Arab Light crude to Asia by USD 2.5 / bbl for April — the largest increase since August 2022.

Debt markets are similarly unfazed: Saudi’s five-year CDS spread has crept up by a mere 7 basis points to 89 — “barely half the Liberation Day spike” triggered by US President Donald Trump’s April 2025 tariff announcement, Gulf analyst at GlobalPartners Justin Alexander tells EnterpriseAM.

“This suggests no panicking about public finances, but it could change if the war does look like it will be protracted,” Alexander says.

BUT- Watch the bottleneck: The financial side is holding up so far, but the physical logistics are the real wild card. Riyadh is leaning heavily on its western coast with Hormuz compromised, and “a lot depends on how much it can ramp up exports on the Red Sea, as the terminals haven’t been tested at high capacities,” Alexander points out. The Kingdom has seen minimal incoming fire so far, with the notable exception of the Ras Tanura refinery.

DATA POINT- Some 9.4 mn barrels of oil were loaded from the Red Sea ⁠port of Yanbu in the first five days of March, equivalent to about 1.9 mn bbl / d, Reuters reported on Friday, citing LSEG data. The figure marks a roughly 60% jump from 1.1 mn bbl / d in February and 1.3 mn bbl / d in January.

The context

We entered the crisis already running a wider-than-expected fiscal deficit of 5.7% of GDP for 2025, well above the budgeted 2.3%. Spending on goods and services came in almost 20% above budget last year, while oil revenues dropped roughly 20% in 2025 due to softer prices at the time and a reduction in Aramco dividends.

The rationale: Running deficits are framed by the government as a deliberate policy choice aimed at maintaining a countercyclical fiscal stance and safeguarding the diversification momentum.

Riyadh had plenty of runway despite the spending spree. The government expects real GDP growth of 4.5% in 2026. Before the conflict, Moody's had projected government debt would reach a still-manageable 35% of GDP by the end of 2026, backed by sovereign financial assets sitting at an estimated 18% of GDP.

Tags: