ADCB sees narrower deficit ahead for Saudi: A temporary spike in oil prices coupled with a post-conflict production ramp-up could see the Kingdom’s fiscal deficit narrow more than previously expected this year, according to an Abu Dhabi Commercial Bank (ADCB) research note cited by Asharq Business.

How? The conclusion of the Iran conflict could pave the way for Opec+ to meaningfully increase output, Monica Malik, chief economist at ADCB, said in the note. This shift would play directly to the strengths of Saudi Arabia and the UAE, which hold the lion’s share of the world’s spare production capacity.

The caveat: The forecast assumes that the duration of the conflict remains limited, allowing for a swift normalization of energy markets. That is looking increasingly unlikely after the US started targeting oil export infrastructure on Iran’s Kharg Island over the weekend, prompting the IRGC to threaten wide targeting of oil infrastructure across the region.

Two scenarios

ADCB’s projections are looking at two scenarios for 2026, both of which represent a shift from the bank’s pre-war forecast of 5.3% of GDP:

  • In a baseline scenario, the shortfall drops to 4.2% of GDP — down from 5.8% in 2025 — if Brent averages USD 72 / bbl. This holds even if daily exports dip to an average of 6.2 mn bbl / d;
  • A second scenario sees the deficit shrinking further to 3-3.5% of GDP if Brent averages USD 80 / bbl. This scenario hinges on the Kingdom scaling exports to over 7 mn bbl / d during 2H this year.

The second scenario brings ADCB’s outlook closer to the government’s targets. Saudi Arabia is shifting toward fiscal consolidation in 2026, looking to narrow its budget deficit to 3.3% of GDP (SAR 165 bn).

ADCB isn’t alone in its projections, with economists telling Bloomberg that the Kingdom could be facing a 3% drop in GDP — which would be its worst hit since the Covid pandemic in 2020 — but will ultimately fare best among its Gulf peers during a protracted war. High oil revenues and export volumes could allow the country to exceed expectations this year, most of the economists said.

The outlook

ADCB expects the Kingdom to lean more heavily on domestic borrowing if the conflict dampens appetite for international bond issuances. Low government debt and robust foreign exchange reserves provide a “sufficient cushion” to navigate the current fog of geopolitical uncertainty, according to the note.

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