Foreign direct investment into Saudi Arabia fell 18% in the second quarter to SAR 22.3 billion ($5.95 billion), compared with the first quarter, as the U.S.-Iran war hit international investor appetite.
The drop lands at a sensitive moment for Saudi Arabia's economic overhaul. Riyadh is targeting $100 billion in annual FDI by 2030 to help finance Vision 2030, reduce the fiscal burden on the government and the PIF, expand the private sector, and bring in jobs and expertise.
But the financing picture is getting tougher. Saudi bank lending to state-owned companies rose 18.4% year-on-year in August, three times the 6% pace of private-sector credit growth. At the same time, the Finance Ministry raised its estimated 2026 budget deficit to SAR245 billion, or 4.9% of GDP, from SAR165 billion, or 3.3%, in the original budget. The ministry said the change reflected spending above the original budget rather than a drop in aggregate revenue.
Moody's said the recalibration of Vision 2030 announced in February, which is focusing on projects with the strongest returns and capital efficiency, should ease pressure on public finances. The rating agency said Saudi Arabia is now prioritizing logistics, manufacturing, utilities, digital infrastructure, and AI, while high-profile mega-projects such as Neom are being restructured.
Moody's also warned that volatility in oil prices and export capacity remain key risks. It forecast Saudi real GDP will contract 3.3% this year because of ongoing disruption of oil trade flows.
Amin Nasser, Aramco's CEO, said at an energy forum in London on Monday that the U.S.-Iran war had reduced oil supply from the region by nearly 3 billion barrels and that the world's oil stockpiles are now 'scarily thin'.
The conflict is also spilling into Yemen. Saudi-backed forces launched attacks to reverse recent Houthi territorial gains, while Yemen's internationally recognized government said its forces retook several strategic positions along the western coast, including Mocha, Dhubab, and areas around the Bab el-Mandeb Strait. The Saudi-led coalition has reportedly deployed 100 fighter jets, and the Houthis are reportedly stepping up missile and drone attacks against Saudi targets, including airports, military facilities, and an Aramco oil refinery.
On Monday, Turkey, Pakistan, and Saudi Arabia agreed to rapidly deploy forces to Saudi Arabia in response to the Houthi attacks, marking the first use of their Mecca Alliance for Defence since it was signed on 7 August.
The market has already voted on the risk. Capital wants clear rules, predictable flows, and a balance sheet that does not lean too hard on the taxpayer. Saudi Arabia still has scale, ambition, and strategic sectors to offer, but war and weaker investor confidence are making that equation more expensive.
