Saudi’s fiscal resilience could face a reality check when Hormuz reopens

The fiscal math is getting harder for Riyadh. Saudi Arabia is heading into the rest of 2026 with an SAR 126 bn hole punched into its books in 1Q alone — the result of a 20% y-o-y jump in spending colliding with oil revenues that are quietly drifting in the wrong direction.

The official line is that this is a deficit by design — a countercyclical wager that the Kingdom can keep pouring money into gigaprojects and military commitments while Hormuz stays closed and Brent trades on a war premium. The question for the next three quarters is whether the design holds, or whether 1Q turns out to have been the easy part.

The base case the government is selling: A full-year deficit of around SAR 165 bn, or 3.3% of GDP, with non-oil revenues continuing the climb they’ve been on — VAT, corporate taxes, tourism receipts, fees — and spending pulling back across 2Q to 4Q.

The early signals on the non-oil side are real: E-commerce sales were up 42.6% in 1Q, point-of-sale transactions hit SAR 189.7 bn, and non-oil exports surged 17.5% in January and February. But the spending side is where the plan starts to wobble.

The Brent question won’t go away. As of last week, the benchmark is hovering just above USD 100 / bbl — off its end-of-April high of USD 126. Hormuz has been largely closed since late February, and a chunk of today’s price is a straight-up war premium — the kind that evaporates the moment tankers start moving freely again.

Here’s where it matters for Riyadh: Our fiscal breakeven now sits near USD 85 / bbl, well above the UAE and Qatar at USD 43-45. “Saudi is the GCC member most exposed to where prices settle once Hormuz reopens,” Celine Bteish, geoeconomist and former IMF analyst, tells EnterpriseAM. If prices land above USD 85, the Kingdom rebuilds buffers and the spending engine keeps humming.

If they don’t, the recalibration that’s already underway gets sharper. More selective capital allocation, heavier debt issuance, and a continued push to shift financing off the sovereign balance sheet and onto global investors via capital market deepening, Bteish says.

The offset from current high oil prices is a clock, not a cushion. “Higher oil revenues will not last long. Once the strait opens, oil prices will begin to decline gradually, so that offset will slowly lose momentum throughout the year,” MENA Economist Hamzeh Al Gaaod tells us.

Add to that Opec+’s diminished pricing power after the UAE’s exit, and the read-across is that crude can support the books in the short to medium term, but not for longer, Al Gaood says.

The logistics story is more reassuring. Saudi has spent the war quietly building dual-route resilience. Red Sea flows out of Yanbu ramped up to roughly 4 mn bbl / d by mid-March from 770k bbl / d in early 2026, giving the Kingdom a credible alternative to Hormuz and a stronger pitch to buyers regardless of how the strait situation resolves. That matters for market share when global demand rotates back to normal patterns.

The spending problem is real though. Expenditure in 1Q ran 20% higher y-o-y at SAR 387 bn, with military outlays alone up 26% to SAR 64.7 bn. The 2026 budget is built on a public sector efficiency drive, but gigaprojects and defense commitments are pulling in the opposite direction.

“If oil softens and spending overshoots, the deficit could approach SAR 250 bn, similar to the 2025 outcome,” Pepperstone Market Strategist Ahmed Assiri tells us. The absorption capacity is there — government reserves are expected to hold steady at around SAR 390 bn, and public debt (at roughly 33% of GDP) remains comfortably inside international safe zones. But financing costs are climbing alongside debt volumes, which narrows the room to borrow cheaply later.

The bottom line: Non-oil activity now accounts for more than half of real GDP, which is the structural buffer that didn’t exist a decade ago. The rest of 2026 is going to test how much of a buffer that really is. The budget’s prospects rest on two things the Kingdom doesn’t fully control: where Brent settles when the war premium fades, and whether global demand holds up enough for Saudi to capture the volume it needs. Strong demand, higher-for-longer prices, and disciplined 2Q-4Q spending is the scenario that lets the SAR 165 bn target survive contact with reality.