MBS's War Economy: How Saudi Arabia Is Paying for Conflict While Oil Prices Climb

In February 2026, Iran struck Saudi Arabia directly, hitting the area around the Ras Tanura refinery, a US air base and the American embassy in Riyadh. By September, the threat had moved to the Red Sea, where Houthi forces overran Yemen's western coast, seized islands near the Bab al Mandeb strait, and hit the Petroline, the pipeline that carries Saudi crude from the Eastern Province to the Red Sea, with drones. The pipeline was shut down. Two crises, six months apart, and the same question sits underneath both of them: what happens to the country that sells the world its oil when its own oil infrastructure becomes the target.

A kingdom fighting on two fronts

The February strikes killed three Saudi civilians and wounded twenty three, alongside two dead and twenty nine wounded American servicemembers at Prince Sultan Air Base, where a Boeing E3 Sentry and a KC135 tanker were destroyed. Saudi air defenses, backed by Patriot batteries and newly bought Ukrainian interceptors, intercepted much of what followed, while Saudi forces reportedly struck Iranian missile sites and Iran backed militias in Iraq in response. A shaky ceasefire held through the summer. Then in September, Houthi advances along the Red Sea coast reached the pipeline itself, and Brent crude jumped past 109 dollars a barrel on the news. Aramco rerouted what exports it could through the Red Sea port of Yanbu after Iran had earlier declared the Persian Gulf a restricted zone.

MBS redraws the region's map

The crisis is pushing Mohammed bin Salman toward faster, wider coalition building. He traveled to Cairo in September to coordinate with President Abdel Fattah el Sisi on securing freedom of navigation through Bab al Mandeb. Saudi Arabia has also signed a new Makkah joint defense agreement with Turkey and Pakistan, though it has yet to produce visible support on the ground. And with Washington reluctant to intervene directly, MBS has quietly sought intelligence help from Israel, routed through US Central Command. None of this replaces the American security relationship. It sits alongside it, a hedge in case Washington's appetite for involvement keeps shrinking.

Where the money comes from if oil cannot move freely

Exports were disrupted, not eliminated. Saudi Arabia is covering the gap, and the cost of the conflict itself, mostly by borrowing rather than draining reserves. The government sought an 8 billion dollar bank loan, Aramco raised 4 billion dollars, and the Public Investment Fund sold a record 7 billion dollars in debt in May 2026 alone. Total financing needs for 2026, including debt repayment and the budget deficit, are estimated near 58 billion dollars. Riyadh chose to borrow for its first half shortfall rather than spend down its cash cushion, a decision that preserves the reserve but adds to what has to be repaid later. The PIF itself has pivoted away from long horizon megaprojects like NEOM and toward faster returning sectors such as logistics, mining, AI and religious tourism, and billions have already been cut from the wider Vision 2030 program.

Why a higher oil price is doing MBS a favor

Saudi Arabia's fiscal breakeven, the price needed to balance the budget, sits around 80 to 85 dollars a barrel. Brent has been trading well above that, near 108 dollars in mid September. That means every barrel Saudi Arabia does manage to sell, even at reduced volumes, brings in noticeably more than the budget assumed. It is an odd position to be in: the same regional instability that is damaging Saudi infrastructure is also the reason prices are elevated, since markets are pricing in risk to roughly a fifth of the world's oil and gas supply that moves through the Strait of Hormuz. The crisis raises Riyadh's costs and its risks. It also partially pays for itself.

How much leverage MBS actually has

Considerable, but not unlimited. He runs a fully centralized security state, controls a sovereign wealth fund whose global investments buy political goodwill from Washington to London, and holds Saudi Arabia's position as OPEC+'s swing producer. He has shown he can assemble new coalitions fast when the United States hesitates. But the limits are real too. Saudi Arabia still depends on American air defense and intelligence sharing, the Houthi advances exposed genuine gaps in its own security, and the Makkah pact with Turkey and Pakistan remains, so far, more promise than capability.

How much patience is left at home

For decades, the Saudi bargain ran one way: oil wealth flowed from the state to its citizens, and citizens stayed out of politics. That arrangement is already broken. VAT tripled from 5 to 15 percent in 2020, a cost of living allowance for public employees was eliminated, and billions have been cut from Vision 2030. MBS has replaced some of that lost consent with social liberalization, cinemas, women driving, and a much heavier security and surveillance presence. Researchers studying the kingdom describe that substitution as precarious, since it leaves him increasingly reliant on repression rather than genuine buy in. For now, an external enemy in Iran and the Houthis tends to rally nationalist sentiment rather than erode it. But GDP growth of just 2.8 percent in the first quarter of 2026, against a 26 percent jump in military spending, shows civilian and development spending already being squeezed to pay for the war. If pipeline strikes continue and subsidies keep shrinking while living costs rise, discontent, especially among younger Saudis who never knew the old cash rich welfare state, could build within a year rather than a decade. The border provinces of Najran, Jazan and Asir, where tribal loyalties are already described as divided, are the likeliest place it would show up first.