Recent missile attacks on Riyadh’s airport have raised concerns among foreign investors about security risks in Saudi Arabia. However, many financial experts argue that a more critical question for investors is the enforceability of contracts amid ongoing regional tensions. Over the past decade, Saudi Arabia has implemented significant legal reforms that enhance contractual certainty and investor confidence, changes that are seen as key to maintaining capital inflows during periods of instability.
Historically, much of Saudi Arabia’s private law was governed by Islamic jurisprudence interpreted individually by judges. This system provided some predictability for experienced practitioners but posed considerable uncertainty for foreign investors encountering the legal environment for the first time. As a result, investors often applied what is termed the “Saudi discount” to account for these risks—an adjustment reflecting not only geopolitical and oil market concerns but also legal unpredictability.
That landscape began to shift notably in December 2023 with the enactment of the Civil Transactions Law, which codified the Kingdom’s rules on contracts, obligations, damages, and property for the first time. Drawing from Islamic legal principles, the legislation established a written legal framework that balances local legitimacy with the need for transparency and consistency sought by foreign parties. This statute serves as the center of a broader series of reforms that have collectively modernized the legal infrastructure underpinning Saudi Arabia’s economy.
Unlike the approach taken by Dubai and Abu Dhabi, which created specialized financial centers governed by common law and staffed by foreign judges, Saudi Arabia opted to reform its national legal system directly. Although this process is slower and less conspicuous, it ensures that improvements apply uniformly across the country, benefiting contractual relationships in all regions from Tabuk to Dammam.
Such legal certainty is crucial during times of conflict. While investors can manage physical risks through insurance, the unpredictability of judicial outcomes is far more damaging to confidence. Past experiences reinforce this point: after the 2019 Abqaiq attack temporarily cut Saudi oil output by half, investment rebounded relatively quickly once production stabilized. Experts attribute this resilience in part to the strengthened legal regime, which is far more robust now compared to several years ago.
The ongoing crisis also provides an immediate test for recent reforms, particularly provisions within the Civil Transactions Law concerning exceptional circumstances. These rules empower courts to adjust contractual obligations when unforeseen events—such as wartime disruptions—render performance overly burdensome. Market observers emphasize that consistent, reasoned judicial rulings in these cases will be pivotal to sustaining investor trust over time.
Critics note that Saudi Arabia’s legal transformation is not yet complete. Judicial independence remains a work in progress, transparency of judgments has room for improvement, and a comprehensive body of case law has yet to develop fully. Nonetheless, the trajectory is viewed positively by market participants. Where a decade ago investors relied heavily on personal relationships, contracts today increasingly rest on a clearer, codified legal foundation.
In sum, while missile strikes have targeted physical infrastructure like airports, the underlying objective appears to be undermining economic confidence. Yet, Saudi Arabia’s legal reforms represent what many consider the Kingdom’s strongest form of defense—providing investors with the assurance that contracts signed today will be enforced tomorrow, thereby stabilizing long-term investment prospects despite short-term security challenges.