Saudi Arabia needs peace in the Middle East for its $500 billion Neom megaproject to succeed

• Conflict in the Middle East is a threat to Saudi Arabia's ambitious Vision 2030 plans.
• Some Neom projects are located along the Red Sea coast, where tensions have been escalating.
• The renewed conflict in the region has left Saudi officials walking a difficult political line.

Escalating tensions in the Middle East are threatening the success of Saudi Arabia's ambitious Vision 2030 plans — especially its desert megacity called Neom.

The kingdom has announced grand plans to boost its tourism industry to 150 million visitors a year by 2030, aiming to build new resorts and cities that will act as Dubai-style travel hubs in the region.

But many of these planned tourist destinations are located on the Red Sea coast, where tensions have been escalating since the October 7 Hamas attacks on Israel and the subsequent conflict in Gaza and beyond.

Iran-backed Houthis have launched numerous missiles and armed drone attacks at Israel and the threat of ongoing conflict has disrupted Red Sea shipping routes, with companies opting to avoid the area.

The conflict in the region has left Saudi officials walking a political tightrope.

Earlier steps toward normalizing relations with Israel have been derailed by a resurgence of local support for the Palestinian cause, while the threat of prolonged conflict risks hobbling officials lofty goals for Neom.

A de-escalating force

Before the October Hamas attacks, Saudi Arabia already appeared to be seeking de-escalation and normalization with its foreign policy in the region.

In March 2023, Iran and Saudi Arabia brokered a deal to re-establish diplomatic relations. With some help from China, the two nations agreed to reopen their embassies in their respective capitals.

In the months before October 7, Saudi Arabia was also reportedly edging toward a deal with the US that would have included a normalization agreement with Israel. According to a New York Times report, one reason is that it's hoping for a US security guarantee if it's ever attacked by Iran.

Progress on the deal appeared to stall after the Israeli offensive in Gaza sparked anger across the region, leaving Saudi officials caught between a wave of local support for the Palestinian cause and US pressure to normalize ties with Israel.

While Saudi Arabia has called for an end to the war in Gaza and accused Israel of committing war crimes, officials have continued to express interest in normalizing relations with the Jewish homeland as long as any deal includes the creation of a Palestinian state.

The US and Saudi Arabia are in the final steps of a new agreement on security guarantees and civilian nuclear assistance, Reuters reported last week. Normalization of an Israeli-Saudi relations is still far from being agreed.

International optics

The conflict in the region poses a problem for Saudi's hopes of attracting millions of new foreign visitors.

Kristian Coates Ulrichsen, a fellow for the Middle East at Rice University's Baker Institute for Public Policy, told Business Insider: "The Saudis are so concerned about any potential escalation because they realize they have this largely untapped Red Sea coastline, which they are now developing and see a lot of potential in."

Many of Neom's projects aimed at capturing the luxury tourism market are located along the Red Sea coast. Set to open next year, Neom's luxury island resort of Sindalah is advertised as an "exclusive gateway to the stunning Red Sea."

Saudi officials need to show that the locations are safe from nearby conflict zones to be able to attract high-spending visitors.

"The optics of stray missiles and drones slamming into Saudi cities when they're trying to attract the sort of high-end luxury markets would be disastrous," Ulrichsen said.

The 2022 Formula 1 Grand Prix in Jeddah, which took place against a backdrop of thick black smoke after Houthi missiles hit a fuel depot five miles away from the racetrack, is unlikely to be far from officials' minds.

After the attack, plumes of black smoke were visible from the circuit and seen during the first practice session, sparking alarm from international drivers.

Supply chain issues

Conflict in the region may also cause issues when it comes to the construction of ambitious projects like Neom.

"The remote location of the project, combined with renewed tensions in the Red Sea, also pose specific issues around construction and delivery of equipment and materials," Robert Mogielnicki, a senior resident scholar at the Arab Gulf States Institute, told BI.

Officials will also need to convince firms and residents to buy into Neom and attract tourists to visit. Mogielnicki said these demand-related variables mean the Saudi government and planners have less direct control over Neom's success.

Saudi officials are already fighting to combat claims that Neom is facing delays and setbacks.

In recent months, Western media outlets have reported that the country is scaling back population estimates for The Line and seeking to borrow funds.

Last month, Bloomberg reported that the financial realities of the project, which could see cost spiral up to $1.5 trillion, have started to cause alarm within the Saudi government.

Difficulties getting construction materials to the Red Sea coast could further delay some Neom projects, which are essentially already "moving targets," according to Ulrichsen.

Neom did not respond to a request for comment from Business Insider.