Saudi Arabia is confronting a severe economic challenge as escalating attacks from Iranian-backed militias jeopardize its ambitious Vision 2030 diversification plan. The Kingdom recently conducted joint strikes with the United States against Iranian proxy militias in Iraq, marking a significant shift in its strategy to counter persistent drone attacks.
This military action follows months of restraint by Saudi Arabia since the US and Israel launched a war on Iran on February 28. The decision to retaliate comes after the Kingdom endured attacks from three different fronts, primarily from Iranian-backed groups. These attacks threaten critical infrastructure and the stability necessary for attracting foreign investment, a cornerstone of Vision 2030.
The current conflict, now in its fifth month, is part of a broader regional struggle involving Iran and its allies, including the Houthis in Yemen and the Popular Mobilisation Forces in Iraq. On the opposing side are the US, Gulf Arab states, and Jordan. This widening conflict risks further destabilizing the Middle East, impacting global energy markets and the economic outlook for countries like Saudi Arabia.
Crown Prince Mohammed Bin Salman, the de facto ruler of Saudi Arabia, initiated Vision 2030 to reduce the country's reliance on oil revenues. This plan aims to build modern domestic industries and create jobs for hundreds of thousands of young Saudi graduates entering the workforce annually. Attracting foreign investment and developing vulnerable infrastructure, such as data centers, are key components of this vision.
However, these economic goals are severely undermined by the threat of sustained drone and missile attacks. In September 2019, Saudi Arabia experienced a major shock when an Iranian proxy militia in Iraq launched drones at its vital Abqaiq and Khurais oil facilities. This attack temporarily knocked out half of Saudi oil exports, serving as a stark reminder of the vulnerability of its critical national infrastructure.
More recently, satellite images on Monday showed the Abqaiq oil facility was again struck by drones from Iranian proxy militias in Iraq. The ongoing threat extends to shipping lanes, particularly the Strait of Hormuz, through which 20% of the world's oil and liquefied natural gas travels. Iran's actions in closing this strait earlier this year forced Saudi Arabia to reroute approximately 5 million barrels per day of oil through its east-west pipeline to the Red Sea port of Yanbu.
The Houthis in Yemen have also escalated attacks, targeting regional Saudi airports at Abha and Jizan following a Saudi-supported government strike on Sanaa airport. More concerning for Riyadh, Houthi attacks on Saudi shipping in the Red Sea threaten to choke off oil exports to Asia by making the Bab El Mandeb strait extremely dangerous for passage.
Saudi Arabia's past attempts to militarily subdue the Houthis over seven years proved unsuccessful, leading to an uneasy truce in 2022. The current resurgence of attacks places the Kingdom in a precarious position. It must now weigh the benefits of continued military deterrence against the potential for further escalation, which could severely derail its economic transformation plans and destabilize global oil supplies.