A growing security premium threatens Saudi Arabia's investment project

Welcome to this week's Fortune Gulf Brief

The recent missile strike on the headquarters of Saudi Arabia's state-owned oil company, Aramco, represents a significant challenge to the Kingdom's reputation as a secure and attractive destination for business operations.

Although Aramco refrained from issuing an official statement regarding the incident, the country’s energy ministry confirmed that the attack resulted in a minor fire and no reported injuries. However, it remains unclear whether the facility located in Dhahran was directly struck or affected by debris from the attacks.

Saudi authorities further reported the interception and destruction of drones and missiles near both the capital, Riyadh, and the southern region of the Kingdom.

As hostilities escalate with the Iran-backed Houthi forces, concerns are rising about the viability of Saudi Arabia's Vision 2030, a plan that seeks to diversify the economy.

The conflict presents a daunting obstacle for a nation that relies on attracting foreign investment to facilitate its transition from oil dependency.

"The events of recent weeks are serious," stated Saudi Energy Minister Prince Abdul Aziz bin Salman during the World Petroleum Energy Congress in Riyadh. He emphasized the necessity for a robust response while maintaining a long-term focus on Vision 2030 and the continuity of investment.

While the specifics of this "serious response" remain ambiguous, it is evident that investor sentiment has already been negatively impacted.

Notably, the CEOs of major oil companies including Shell, TotalEnergies, BP, and ExxonMobil, who were expected to participate in this week's congress, were notably absent.

According to the Wall Street Journal, Crown Prince Mohammed bin Salman has been relocated to fortified palaces equipped with bunkers under the protection of a specialized security team.

Over the past week, several key strategic assets in the Kingdom have been targeted, with King Khalid International Airport in Riyadh facing four attacks within just five days. The most recent attack resulted in 13 fatalities and 309 injuries, marking the deadliest incident on Saudi territory in over a decade.

James Reeve, a Saudi macro consultant and former senior director at the Saudi Public Investment Fund, remarked that existing foreign investments in the Kingdom are likely to remain intact for the foreseeable future.

However, he expressed concern about the long-term implications for new foreign direct investment (FDI).

For firms deliberating substantial capital investments in Saudi Arabia, the sight of missiles striking a major airport could have a lasting impact on decision-making. Those evaluating opportunities in tourism infrastructure will also need to consider potential repercussions on tourism traffic.

As a precautionary measure, Saudi authorities extended the closure of the airport until Saturday, prompting regional airlines to suspend flights temporarily.

In addition, Air France-KLM has halted its services to Riyadh until the end of October, and Delta Air Lines has postponed its planned route from Atlanta to Riyadh, initially set to begin on October 23, until March 2027.

"In the short term, this is clearly damaging," remarked Andreas Krieg, a Middle East security analyst at King's College London.

He noted that the consequences transcend mere physical damage or flight cancellations; they signify a return of a "security premium" for conducting business in Saudi Arabia. Potential outcomes may include postponed investment decisions, increased return expectations, and greater reliance on state capital.

Given that King Khalid International Airport serves as a primary gateway to the capital and is foundational to the Vision 2030 initiative, the Houthi attacks pose a direct threat to the Kingdom's ambitious strategy. Saudi Arabia aims to establish itself as a global hub for business, logistics, tourism, hospitality, and significant global events, such as the Expo 2030 and the FIFA World Cup 2034.

Prior to the recent assaults, the airport utilized to facilitate approximately 110,000 daily passengers, a volume comparable to Miami International Airport. It also serves as the operational base of Riyadh Air, a new airline supported by Saudi's Public Investment Fund, which aspires to position Riyadh as a rival transportation hub to cities like Dubai and Doha.

These developments occur amidst rising fiscal difficulties for the Kingdom.

In the first half of 2026, Saudi Arabia reported a fiscal deficit of 160 billion riyals ($42.7 billion), an increase of 71% from the previous year's 93 billion riyals, driven by heightened spending to stimulate economic growth amid ongoing tensions from the U.S.-Iran conflict.

Earlier this month, the Finance Ministry raised its projected budget deficit for 2026 by 48% to 245 billion riyals ($65.33 billion), representing approximately 4.9% of GDP.

Given these financial revisions, further downgrades in forecasts may now be anticipated.

Nonetheless, Krieg contended that it is premature to question the credibility of Saudi Arabia’s long-term economic initiatives.

"I would not extrapolate from several weeks of disruption to the collapse of Vision 2030," he stated, emphasizing that the Kingdom possesses substantial fiscal resources, extensive domestic capital, and the capability to sustain strategic projects even when private investment may wane. The long-term implications largely depend on the conflict's duration.

Reeve echoed this sentiment, indicating that the impact on investor confidence would be closely tied to the conflict's timeline, placing the responsibility on the government to restore investor reassurance.

"Foreign investors are unlikely to disengage at this juncture," he noted. "They will assess the duration of the strikes and observe how the government and the Public Investment Fund may respond to bolster investor confidence."

However, he conveyed a more somber outlook overall, stating, "All in all, I think current events represent a significant impediment to the Vision 2030 narrative."

The Kingdom's flagship business summit, the Future Investment Initiative (FII), known as "Davos in the desert," is scheduled to occur in less than two weeks and will serve as a critical barometer of investor sentiment toward Saudi Arabia.

On Tuesday, Reuters reported that Riyadh is considering a hybrid format for the FII, allowing executives the option to participate remotely.

Historically, attendance at the FII has been meticulously curated, making it one of the most sought-after events, attracting influential figures from Wall Street, including BlackRock, Goldman Sachs, and JPMorgan.

Just three months ago, PIF's governor Yasir Al-Rumayyan articulated the sovereign wealth fund's objective to "bring the world back to Saudi" at the FII's Priority Europe summit in Rome.

In light of ongoing missile strikes and associated travel advisories, global stakeholders may first require assurances of safety before proceeding.

Abu Dhabi advances AI ambitions

Abu Dhabi is betting on AI to help the government run better

In a significant development last week, Abu Dhabi partnered with technology leaders OpenAI and Microsoft to launch AiNative, an AI training initiative aimed at preparing 20,000 government employees as part of its ambition to become the first AI-powered government by 2027.

Unveiled during the Ai Everything conference in the capital, this program will provide government employees with hands-on training using tools such as ChatGPT, Codex, and Microsoft 365 Copilot.

Subsequent phases will offer specialized training and certification tailored to specific roles, including coding and data analysis.

Additionally, citizens and residents will benefit from educational components that demonstrate practical AI applications in everyday scenarios, such as personal finance management, small business operations, and job searching strategies.

AiNative is part of Abu Dhabi’s broader AED 13 billion ($3.5 billion) Digital Strategy 2025–2027, which aims to enhance AI integration and digital infrastructure, fully automate government processes, and implement sovereign cloud computing across all operations.

By 2027, this strategy is expected to generate over AED 24 billion ($6.54 billion) in economic benefits for the emirate.

It signals a broader shift in the UAE's approach to AI, moving from merely investing in technology to embedding it within governmental and societal functions.

Ruba Al Hassan, the director general of strategic affairs and future foresight at Abu Dhabi's Department of Government Enablement, highlighted efforts to automate routine administrative functions, including license renewals and utility payments, through the emirate’s AutoGov service.

SoftBank courts Gulf investors

SoftBank looks to revive Gulf backing for its AI investments

SoftBank Group CEO Masayoshi Son is reportedly targeting as much as $100 billion in funding from Gulf investors to support a new wave of AI investments.

In recent weeks, Son has engaged in discussions with prominent figures in the UAE regarding potential fundraising strategies.

Should Gulf investors contribute to this fundraising effort, Son intends to create a fund to acquire companies and enhance their operations with AI and other advanced technologies.

Saudi Arabia's Public Investment Fund and Abu Dhabi's Mubadala were significant investors in SoftBank's inaugural $93 billion Vision Fund, launched in 2017.

Since its inception, the first Vision Fund reported approximately $29 billion in investment gains by the end of June. Meanwhile, Vision Fund 2, which was launched more recently and primarily financed by SoftBank, has generated $20.5 billion in returns.

However, the first Vision Fund has also encountered several high-profile setbacks, most notably with WeWork, which filed for bankruptcy and underwent extensive debt restructuring.

Reports indicate that OpenAI is in discussions with several UAE investment funds, including Abu Dhabi-based MGX, regarding a prospective $30 billion fundraising round for the company. The UAE funds may participate as a consortium, exploring a combined investment of up to $10 billion.

The Big Number

-4.3

Last week, the World Bank revised its real GDP forecast for the GCC to a contraction of -4.3% compared to a previous expectation of 1.3% growth. The most significant downward adjustments were recorded for Qatar, now forecasted to decline by -21% (from -6%), and Kuwait, projected to decrease by -15% (from -6%).