Giga-projects

Red Sea crisis a threat to Saudi giga-project investment

January 18, 2024, 9:35 AM

Sightseers wait for boats to take them back to land after they toured the Galaxy Leader commercial vessel, seized by Yemen's Houthis last month

Global SWF sounds alarm
Situation has ‘significant risk’
Saudi ‘concern’ at US/UK strikes

The Red Sea conflict between western powers and Houthi rebels in Yemen could put Saudi Arabia’s mammoth economic development projects at risk, the sovereign wealth fund advisory Global SWF said this week.

The US and UK began airstrikes against targets in Houthi-controlled north Yemen on 12 January to stop them firing missiles at Red Sea shipping that is conducting trade with Israel while the Gaza war continues.

The Iran-allied Houthis have since stepped up their attacks on US and British vessels.

Major shippers are avoiding the waterway, through which 15 percent of maritime commerce passes, causing supply chain disruptions and threatening a new wave of global inflation.

Saudi Arabia has tried to keep out of the conflict since the Houthi attacks began in November, in line with its policy of rapprochement with the Houthi group. It issued a statement last week expressing “great concern” over the air strikes.

Video: Gulf retailers absorb Red Sea shipping cost rise – for now

But Global SWF said Gulf investments were at risk, particularly those into Saudi Arabia, if the kingdom gets caught in the crosshairs.

“For Saudi Arabia’s Public Investment Fund (PIF), the situation has a significant risk to the array of giga-projects under its umbrella, most of which lie along the Red Sea coast – and are within range of Houthi drones and cruise missiles,” it said in a note this week.

“Since most of these projects have a tourism dimension, their success could be undermined by any ongoing, lengthy conflict, even if there is no direct hit by Houthi strikes.”

PIF, one of the world’s largest sovereign wealth funds, is leading Saudi Arabia’s economic diversification plans with giga-projects such as the futuristic city Neom, the Diriyah district in Riyadh, and Jeddah Central.

Global SWF said that it was because of easing tensions between Riyadh and the Houthis – a Saudi delegation visited Sanaa in May – that PIF pushed ahead with new Red Sea tourist projects in the mountainous region near Yemen such as Soudah Peaks and AlWadi.

During the Yemen war, when Saudi Arabia and the UAE led air strikes against the Houthis after the Yemen government fled to Aden, the Houthis used missiles and drones against targets in Saudi Arabia. There has been a truce in place since 2022.

Global SWF said investors will be worried about the impact of the Red Sea conflict for development projects in other locations such as Egypt and Djibouti.

“The quicker the conflicts are resolved, the more secure SWF interests in the Red Sea will be,” it said.