U.S, March 19 -- Along Saudi Arabia's remote Red Sea coast, where mirrored walls were meant to rise from the desert and stretch for miles, a quieter reality is beginning to take hold.

Saudi officials have cancelled key construction contracts tied to NEOM, the kingdom's $500 billion flagship development, in what analysts describe as one of the clearest signs yet that the futuristic project is being recalibrated amid mounting financial strain and escalating regional tensions.

The cancellations - including major tunneling works essential to The Line, NEOM's planned 170-kilometer linear city - come at a moment of heightened uncertainty across the Gulf, as conflict involving Iran threatens infrastructure, investment flows and economic confid...