Years of diplomatic groundwork may have insulated the Kingdom from the worst of the ongoing regional conflict, turning Riyadh and Jeddah into vital logistical lifelines and prompting corporates to rethink relying on one hub in the region. However, this strategic buffer might be highly fragile: with a Friday deadline looming for a US ultimatum against Tehran, further escalation threatens to trigger a global energy shock — and shatter the broader regional stability required to fund the Kingdom’s aggressive FDI targets.

The geopolitical hedge at work

The Kingdom has been working for years to cool down regional tensions. The Chinese-brokered détente with Tehran in March 2023, and the strict policy to freeze the situation in Southern Yemen (one that saw Saudi enter a brief standoff with the UAE shortly before the war), were seen as crucial for the diversification efforts to bear fruit. Riyadh publicly rejected any usage of its airspace in attacks on Iran — not only this time around but also during the June 2025 attacks.

The strategy seems to have paid off when we needed it the most. Iranian attacks on Riyadh and the Eastern Province were substantially lower than the barrages that hit Dubai, Bahrain, and Kuwait, and the heaviest strikes on our territory were reserved for the US embassy and military assets. Houthis — once a troubling presence — did not jump into the conflict (yet).

That poised Saudi as a “safer” haven, actively absorbing rerouted supply chains while neighboring maritime routes and regional markets faced unprecedented disruption. The East-West pipeline almost tripled its average daily oil exports in March following the Hormuz closure, and shipment rates are reportedly already dropping from their peaks as more tankers arrive at the Yanbu port. Riyadh airports were one of the main entry and exit points in the early days, when widespread airspace closures grounded most flights. The Port of Jeddah is now seen as a key lifeline to which essential food and meds shipments were rerouted.

We’re also being eyed as a hedge against regional instability. No one we talked to is seeing massive capital flight from Dubai or Doha, but businesses are weighing the benefit of having more than one regional HQ to ensure continuity. A similar effect is taking place in tech: hosting additional redundancies in Riyadh and Jeddah can prevent service outages like the prolonged ones that resulted from the targeting of data centers in Dubai and Bahrain.

BUT- The Kingdom is still part of the wider GCC, and relative calm in our territory is unlikely to stay attractive if investors see the whole region as unstable. Sectors like tourism are confidence-sensitive, and a longer conflict is going to ramp up the pressure with every passing day, according to ratings agency Moody’s.

Regional stability is crucial for Saudi’s diversification plans to work, especially if we’re banking on steady FDI inflows to fund projects through 2030. This was already a concern going into 2026, as the pace of FDI inflows’ growth turned out slower than expected.

DATA POINT- To hit the 2030 target of USD 100 bn annually (or 5.7% of GDP), the Kingdom needs a compound annual growth rate of over 21%, according to our calculations. That is unlikely to happen unless institutional investors are convinced Saudi (and the Gulf as a whole) is insulated from regional volatility.

Time is not our friend

The longer the conflict drags on, the more willing Washington, Tel Aviv, and Tehran are to take higher risks to tip the scales in their favor. Actors currently sitting out the conflict — not just the Houthis, but non-state actors in Iraq and even Lebanon — could also start playing a more active role, further destabilizing the region.

Strikes from both sides have been steadily shifting from military targets to civilian and energy infrastructure. We are only a couple of weeks in, and we already saw Israel strike the world’s largest gas field, which sparked Iranian retaliation that took out 20% of Qatar’s LNG supply — and it could take five years before production is back to normal levels. Our own Samref oil refinery was hit and got away with a temporary shutdown, resuming work in a few hours, but it’s not unlikely that a major escalation could see more extensive damage to our energy assets in a similar vein to Qatar’s Ras Laffan.

It could get much worse: Trump issued an ultimatum for Tehran to open Hormuz or their power grid will be destroyed, to which Iranian officials responded with threats to take out energy and civilian infrastructure across the region. The humanitarian and economic costs in that situation will be unbearable if diplomacy does not prevail before the deadline, now extended to Friday.

Could continuous Iranian strikes and the threat of escalation drag us into direct military confrontation with Tehran? We think this is highly unlikely given the quagmire it’s going to cause, but the US press seems eager to heavily signal we’re getting closer to this moment. Unconfirmed reports by the Wall Street Journal claim Saudi recently agreed to let US forces use the King Fahd air base, while the New York Times reported Crown Prince Mohammed bin Salman is pushing Washington to continue the war, citing “people briefed by American officials.”

The government denied the conversation, saying in a statement that Saudi “has always supported a peaceful resolution to this conflict, even before it began,” and the main concern remains defending its territory “from the daily attacks on our people and our civilian infrastructure.”

Oil disruption remains the real elephant in the room

Prolonged physical oil supply shortages run the risk of exhausting at-sea inventories, leaving the market in a steep price discovery mode that could send oil to very high levels. Saudi and the UAE’s alternative routes make only for a portion of some 20% in global oil barrels that used to pass through the strait, now effectively shut as tankers are either unwilling or unable to risk passage and US efforts to rally a global campaign to forcefully open the strait seem to have fallen through.

Higher oil prices might prop up revenues and shrink our deficit in the short term, but demand destruction will be bad for everyone. “A price spike to USD 180 / bbl functions as a massive global tax that could trigger a contraction in global GDP, effectively killing the consumer appetite,” Market Strategist at Pepperstone Ahmed Assiri tells EnterpriseAM. That level “remains a mathematically sound projection if diplomacy fails by Friday, dragging the disruption on for months to come,” Assiri added.

REMEMBER- Saudi officials are reportedly already mapping out a scenario where oil hits USD 180 if disruptions continue until April.

What’s at stake?

The Friday deadline is now the pivot point — not just for Saudi but for the global economy in 2026, according to Assiri, and institutional participants seem to be treating Trump’s “constructive talks” with skepticism. “The market is currently in a state of waiting for the headlines that will either reprice the risk premium to the downside or trigger the most aggressive energy shock in modern history,” he says.

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