In a striking episode that captured the delicate intersection between domestic transformation and foreign policy, Saudi Investment Minister Khalid Al-Falih publicly acknowledged the need to reassess certain priorities in Vision 2030 projects, only to be dismissed from his post two days later. His remarks underscored mounting fiscal pressures: higher levels of government spending, consistently low oil prices that could not comfortably finance mega-projects, and inadequate foreign direct investment (FDI) flows. Together, these factors have compelled Riyadh to revisit, recalibrate, or scale down elements of its ambitious economic diversification strategy under Saudi Vision 2030.
This recalibration is not merely an economic matter; it constitutes a central determinant of Saudi foreign policy in the current regional environment. The success of diversification away from oil is an existential priority for the Saudi leadership. As such, foreign policy choices increasingly reflect the imperative of preserving macroeconomic stability, protecting investor confidence, and projecting an image of long-term predictability. Riyadh seeks a regional order conducive to capital inflows and aspires to transform the Kingdom into a financial and investment hub for the broader Middle East. Yet the prevailing regional turbulence complicates these ambitions.
Saudi Arabia thus finds itself navigating a complex set of trade-offs. It seeks regional stability while entering into a strategic competition with the United Arab Emirates (UAE) over influence and economic primacy. It benefits from the relative weakening of Iran’s regional posture but is reluctant to see a full-scale regional war that could expose its territory to retaliation. It perceives potential gains from normalization with Israel, yet remains constrained by domestic, Arab, and Islamic sensitivities, particularly in the aftermath of the Gaza war. Saudi Arabia appears to be walking a tightrope, balancing competing imperatives amid a volatile regional landscape.
Continuity in Core Foreign Policy Parameters
Despite apparent tactical adjustments and episodic tensions, there have been no fundamental shifts in the structural parameters of Saudi foreign policy. The disagreement with the UAE, widely perceived as more hardline in its campaign against political Islam, has not translated into a Saudi softening toward Islamist movements. Riyadh continues to express a negative stance toward the Muslim Brotherhood and welcomed the US designation of three of its branches as terrorist organizations. While Saudi Arabia may exhibit tactical flexibility toward certain branches, particularly in Yemen where pragmatic engagement is often unavoidable, there is no indication of a reversal in its foundational posture toward the Brotherhood domestically or regionally.
Interestingly, recent Saudi media campaigns targeting the UAE have emphasized accusations that Abu Dhabi supports fragmentation in Arab states in ways that ultimately serve Israeli interests. At first glance, this messaging appeared to signal a sharper Saudi turn against Israeli regional conduct and perhaps a retreat from normalization prospects.
During his visit to Washington earlier in February, Saudi Defense Minister Khalid bin Salman met with members of the US Congress and representatives of Jewish organizations. In his meetings with Jewish leaders, he clarified that the Saudi media campaign did not represent a strategic shift in Riyadh’s position. He reportedly affirmed ongoing security and intelligence cooperation between Saudi Arabia and Israel, while acknowledging areas of disagreement—particularly regarding Somalia.
Regardless of the accuracy of this report, normalization with Israel remains on the Saudi strategic horizon. Riyadh is unlikely to proceed in the near term, especially in the absence of a clear end to the war in Gaza and broader regional de-escalation. Reports indicate that individuals close to the Saudi leadership believe formal normalization could occur within a two- to five-year timeframe. Yet such a step would require a compelling political narrative, one capable of persuading domestic, Arab, and Islamic audiences that Saudi Arabia has secured meaningful concessions or benefits.
Riyadh is unlikely to proceed with normalization in the near term, especially in the absence of a clear end to the war in Gaza.
Public opposition to normalization remains significant within Saudi society and across the region. Riyadh calculates that normalization could yield security and economic advantages, including technological cooperation in advanced sectors such as artificial intelligence, as well as potential gains from Washington in defense, military, technological, and civilian nuclear domains. Nonetheless, the kingdom is not in a hurry. It seeks assurances that normalization would not compromise its national security interests, particularly in Yemen and the Red Sea, nor undermine its regional standing. For now, Saudi Arabia preserves the normalization track as a strategic option while lacking a clear pathway to realize it fully.
The Iranian Dilemma: Between Containment and Escalation
Saudi Arabia’s approach to Iran epitomizes its broader balancing act. Western media have reported that Saudi officials urged US President Donald Trump not to launch military strikes against Iran, warning of destabilizing consequences for the Gulf. Conversely, other reports suggest that while in Washington, Khalid bin Salman argued that a US retreat from confronting Iran militarily would embolden Tehran regionally.
This apparent contradiction reflects the kingdom’s complex calculus. On the one hand, Saudi Arabia benefits strategically from the weakening of Iranian influence. It seeks to expand its own footprint in arenas such as Syria—where Iranian retrenchment has created space for Saudi re-engagement— and welcomes efforts that diminish the operational capabilities of Iranian-aligned non-state actors.
On the other hand, Riyadh does not seek to corner Iran to the point of regime collapse or uncontrolled escalation. A direct regional war could expose Saudi territory to missile and drone retaliation, threaten energy infrastructure, and intensify existing economic pressures. Such instability would deter foreign investors precisely at a time when Saudi Arabia needs capital inflows to sustain its transformation agenda.
This logic explains Saudi Arabia’s commitment to maintaining the 2023 China-brokered rapprochement with Iran. Even during episodes of unrest within Iran in January, Saudi Arabia refrained from inflammatory rhetoric. The objective is not reconciliation in a strategic sense, but risk mitigation. A weakened Iran presents opportunities; a war-torn Gulf presents existential economic risks.
Saudi policymakers thus attempt to thread a narrow path: benefiting from Iran’s relative decline without triggering retaliatory dynamics that could engulf the Gulf in conflict. The stability of Saudi territory is paramount, not only for the kingdom’s national security but also for safeguarding Vision 2030’s credibility.
Strategic Competition with UAE
Saudi-Emirati tensions add another layer of complexity. The rivalry encompasses economic competition, oil production quotas, investment attractiveness, and regional hub status, but it also carries national security dimensions, particularly in the Red Sea basin.
From Riyadh’s perspective, Emirati activism in Yemen, Sudan, and Somalia challenges Saudi influence and, in some cases, undermines its security objectives. Yet countering the UAE in these theaters entails significant financial commitments. Reports suggest Saudi Arabia will allocate some $3 billion to Yemen following the UAE’s withdrawal. In Sudan, Riyadh may need to channel resources to support the national army against the Rapid Support Forces, which are widely perceived to receive Emirati backing. Somalia’s fragile federal government requires sustained financial assistance, and Syria, where Saudi Arabia has expanded its footprint following Iran’s retrenchment, faces enormous reconstruction needs.
Even Egypt, which Saudi Arabia would like to align more closely with its positions in Sudan and Somalia, remains economically dependent on Emirati capital. Across these arenas, Saudi Arabia faces a structural constraint: its domestic spending obligations under Vision 2030 limit its capacity to bankroll expansive regional campaigns.
Saudi Arabia’s domestic spending obligations limit its capacity to bankroll expansive regional campaigns.
The tension is particularly acute in Yemen. Saudi Arabia needs a durable political settlement to secure its southern border and the Red Sea corridor. Yet it has refrained from pursuing a comprehensive agreement with the Houthis, opting instead to sustain a fragile truce. Whether Riyadh seeks a permanent settlement or prefers managing the status quo remains unclear. What is evident is that any renewed escalation would impose financial and security costs at a time when the kingdom is fiscally stretched.
To be sure, Saudi Arabia’s regional rivalry with the UAE in the region is moderated by economics. Riyadh must defend its national security interests without triggering a resource-draining proxy contest. This balancing act is emblematic of a broader pattern: ambition moderated by fiscal prudence.
Conclusion
At present, Saudi Arabia does not appear to operate from a fully articulated grand strategy for resolving the region’s multiple crises. Instead, it exhibits adaptive pragmatism, responding to shifting dynamics while prioritizing economic stabilization and domestic transformation.
The kingdom feels compelled to counter Emirati encroachment in select arenas, yet it must weigh these moves against the financial demands of its domestic projects. It seeks to capitalize on Iran’s vulnerabilities, but without precipitating a war that would endanger its own economy. It keeps normalization with Israel as a strategic option, yet lacks the political conditions necessary to operationalize it. Across these dossiers, fiscal constraint is the central limiting factor.
Saudi Arabia’s regional posture is therefore shaped by a convergence of economic recalibration, geopolitical rivalry, and strategic caution. Delays or setbacks in domestic transformation further narrow its maneuvering space, raising the risk of regional overextension. Moreover, Saudi Arabia will find it difficult to insulate itself entirely from broader regional wars, particularly a confrontation involving Iran, Israel, and the United States.
In this environment of uncertainty and flux, Saudi policymakers are attempting to minimize costs while preserving optionality. They walk carefully along the fault lines of a region in transition, aware that miscalculation could undermine both their economic vision and their geopolitical standing. The future remains open to multiple trajectories, and Saudi Arabia’s ability to maintain balance amid competing pressures will determine whether it can secure stability at home while sustaining influence abroad.
The views expressed in this publication are the author’s own and do not necessarily reflect the position of Arab Center Washington DC, its staff, or its Board of Directors.
