A prolonged regional conflict could put the world economy under mounting pressure, driving up prices, disrupting supply chains and slowing growth, Saudi Central Bank Governor Ayman Al-Sayari has warned.
Addressing the Istanbul Economic Forum, Al-Sayari said the global economy had weathered successive geopolitical shocks but faced growing uncertainty as regional tensions continued. He noted that Saudi Arabia had maintained considerable financial and economic resilience despite the challenges surrounding it.
Global economic growth is projected to reach around 3% in 2026, following repeated downward revisions, with a recovery anticipated in 2027. Inflation, meanwhile, is expected to remain elevated at approximately 4.7%, raising concerns that price pressures could return after easing since 2024.
Al-Sayari warned that disruptions to supply could create a difficult combination for policymakers: higher prices alongside weaker economic activity. Such conditions would complicate efforts by central banks to contain inflation without further undermining growth.
He also cautioned that prolonged instability could erode investor confidence, increase the risk premiums demanded by financial markets and make international financing more expensive. These risks are particularly significant as governments and businesses continue to contend with high debt levels.
Saudi Arabia leans on infrastructure and economic diversification
Despite its proximity to the conflict, Saudi Arabia has demonstrated an ability to absorb external shocks, Al-Sayari said. He attributed this resilience to substantial foreign reserves and assets, investments in strategic infrastructure and the economic transformation pursued under Vision 2030.
Energy infrastructure has been particularly important in keeping oil moving despite disruptions affecting the Strait of Hormuz and the Red Sea.
The East-West Pipeline has enabled the Kingdom to continue supplying customers, although exports remain below levels recorded before the conflict. The pipeline can transport approximately 5.8 million barrels of oil per day, while another route developed with regional partners provides an additional capacity of between 1 million and 2 million barrels daily.
Saudi Aramco has also established oil reserves at locations around the world to help maintain deliveries when supply routes face disruption.
Al-Sayari said these arrangements illustrated why countries must invest in critical infrastructure during stable periods rather than wait for a crisis to expose weaknesses. Building alternative transportation routes and maintaining strategic reserves can help economies withstand unexpected interruptions.
Non-oil sectors provide a cushion
Saudi Arabia’s overall economy recorded negative growth in two consecutive quarters in 2026, largely because of weakness in the oil sector. However, activity outside the oil industry continued to expand, providing some support against the downturn.
Non-oil economic activity grew by approximately 2% in the first quarter and 1% in the second quarter, according to Al-Sayari.
He pointed to population growth, record-low unemployment among Saudi nationals and progress in economic diversification as factors supporting domestic demand.
Inflation also remained relatively contained, standing at 1.8% in mid-August 2026. Government measures, including domestic fuel price caps, helped limit price increases, while the Saudi riyal’s peg to the US dollar provided an additional buffer against imported inflation.
The governor said the currency arrangement was particularly useful given the structure of the Saudi economy and its exposure to international markets.
Banks retain strong financial buffers
Saudi Arabia’s banking sector has continued to demonstrate resilience since the conflict began, supported by substantial capital and liquidity reserves.
June 2026 figures showed a liquidity coverage ratio of 170%, a capital adequacy ratio of 20.9% and a net stable funding ratio of 114.6%.
Al-Sayari also highlighted the Kingdom’s A+ sovereign credit rating, which has helped banks retain access to international financing markets even as geopolitical tensions push risk premiums higher.
Domestic liabilities represented 87.1% of total liabilities across Saudi banks, limiting their exposure to the risks associated with sudden capital outflows.
These conditions have allowed banks to maintain their capacity to extend credit and finance domestic projects, supporting economic activity despite uncertainty in the wider region.
Central banks urged to prepare for prolonged uncertainty
Al-Sayari said geopolitical shocks do not automatically require central banks to overhaul their monetary policy frameworks. Instead, they underline the need for flexibility, operational preparedness and effective crisis management.
A key challenge is determining whether inflation caused by supply disruptions will fade as conditions normalize or become more persistent through secondary effects on wages, prices and broader economic activity.
Central banks must be ready to respond to sudden liquidity pressures and volatility in financial markets, particularly when access to external financing becomes more difficult, he said.
He also stressed the importance of international coordination and timely information sharing, noting that the economic consequences of geopolitical instability frequently cross national borders.
Al-Sayari’s central message was that resilience cannot be built after a crisis has already begun. Governments and financial institutions need to establish adequate safeguards in advance, identify vulnerabilities early and ensure that their systems can withstand shocks before those risks turn into wider economic damage.
