Saudi Iran Relations Help Cools Major Risk

The overall risk rating remains medium. The risk of political violence decreased to medium-high and political interference risk scaled down to medium when compared to the previous risk analysis period. Despite adverse impacts of the war between Israel and Hamas, Saudi Arabia turned a new page with Iran and Turkiye in 2023, maintaining closer diplomatic relations while the war is testing the sincerity of these rapprochement. It appears Saudi Arabia’s relations with Israel will stay complicated in the near future as the country officials recently stated that the country will normalize relations with Israel only if there is a two-state solution between the Israelis and Palestinians. On the economic front, the economy continues to remain contingent upon the revenues from fossil fuels, as the shipments of oil account for 87% of total exports and for 46% of GDP. The economy shrank in 2023, as GDP contracted by 3.2% on quarter in Q3 of 2023, following a 0.5% fall in the previous quarter. The annual inflation rate in Saudi Arabia edged higher to 1.7% in November 2023 from the previous month's figures. Despite growing economic concerns, centered around the oil market, the path of U.S. monetary policy, the conflict in Gaza, and the effects of domestic reforms, the government remains highly committed to the 2030 program vision, which provides dual support through infrastructure spending but also a desire to reform.  Saudi Arabia launched a new residency program on Jan. 11 aimed at attracting skilled professionals and investment as the country forges ahead with its plan to pivot its economy away from fossil fuels. The financial and economic strength keeps the sovereign non-payment risk at medium.  The only medium-high risk rating comes from the political violence measure, as domestic discontent remains about differences in income inequality; the provision of services by the government and political and human rights freedoms. Additionally, the ongoing war in Yemen also provides a risk of spilling into occasional attacks on Saudi Arabia.