Missiles make headlines. But Saudi Arabia’s quieter legal revolution matters more to investors.
When missiles hit Riyadh’s airport this month, foreign executives asked the obvious question: Is it safe to go? A more useful question for investors is a duller one: If something goes wrong, can I enforce my contract? On that question, Saudi Arabia has quietly changed more in the past decade than in the previous 50 years and this is the change most likely to keep capital in the Kingdom through the current storm.
Until recently, a foreign lawyer advising on a Saudi deal faced an awkward fact: much of the Kingdom’s private law was not written down. Contracts were governed by Islamic jurisprudence as interpreted by individual judges, which produced outcomes that experienced practitioners could predict but newcomers could not. Investors priced in that uncertainty, often heavily. The “Saudi discount” was partly about oil and geopolitics and partly about the law.
That discount has been shrinking. The Civil Transactions Law, which came into force in December 2023, codified for the first time the rules on contracts, obligations, damages and property. It drew on Islamic jurisprudence, which gave it local legitimacy, while giving foreign counterparties the written rules they needed. Around it sits a wider set of reforms: a Law of Evidence in 2022, a modern Bankruptcy Law in 2018, specialist commercial courts since 2017 and a new Investment Law intended to give foreign investors the same treatment as local ones. Taken individually, each is a technical change. Together, they have rebuilt the legal foundations of the economy.
Riyadh chose the harder path of reforming the national system. That takes longer and attracts less attention but it reaches further
Dr. Bashayer Al-Majed
The approach is worth noting. Dubai and Abu Dhabi chose to build common law enclaves — the Dubai International Financial Center and Abu Dhabi Global Market — with imported judges and English-style rules inside special zones. That was effective but it left the rest of their legal systems largely unchanged. Riyadh chose the harder path of reforming the national system itself. That takes longer and attracts less attention but it reaches further. A contract signed in Tabuk or Dammam benefits as much as one signed in a financial district.
Dispute resolution has kept pace. Saudi Arabia joined the New York Convention on enforcing foreign arbitral awards in 1994 but for years enforcement in practice was uneven. The 2012 Arbitration Law, modeled on the convention’s Model Law, and the establishment of the Saudi Center for Commercial Arbitration changed that. Saudi courts now regularly enforce foreign awards and Riyadh is positioning itself as a seat of arbitration in its own right. For an investor, that is the difference between an asset and a gamble.
Why does this matter in a war? Because legal certainty is what makes temporary shocks temporary. Investors can insure against missiles but they cannot insure against arbitrary courts. A country under attack whose legal system is unpredictable sees capital leave and stay away. A country under attack whose contracts are enforceable sees capital pause and then return. The Abqaiq attack in 2019 knocked out half of Saudi oil output for a few weeks; investment returned once production recovered. The legal system is far stronger now than it was then.
Ten years ago, an investor’s Saudi contract rested largely on trust in relationships. Today it increasingly rests on written law
Dr. Bashayer Al-Majed
The crisis also tests the reforms in a way that could strengthen them. Wartime brings disputes over force majeure, insurance claims, delayed deliveries and canceled flights. The Civil Transactions Law contains rules on exceptional circumstances that allow courts to rebalance contractual obligations when unforeseen events make performance excessively onerous. How Saudi courts apply them over the coming months will be watched closely by every legal department with exposure to the Kingdom. Consistent, reasoned judgments will do more for investor confidence than any number of conferences.
Critics will say that the reform is incomplete. Judicial independence and the transparency of judgments are still developing and the system is new enough that case law remains thin. That is fair. But capital cares about direction as much as position and the direction is clear. Ten years ago, an investor’s Saudi contract rested largely on trust in relationships. Today it increasingly rests on written law. No other large emerging market has moved as far, as fast.
The missiles were aimed at airports. The real target was confidence. Confidence ultimately rests not on air defenses but on the knowledge that a contract signed today will be honored tomorrow. On that front, Saudi Arabia has been quietly building its strongest defense.
Dr. Bashayer Al-Majed is a professor of law at Kuwait University, and a visiting fellow at Oxford. X: @BashayerAlMajed
