The conflict involving Iran has pushed logistics expenses for Middle East oilfield-services projects sharply higher, with some contractors reporting increases of as much as threefold. Executives speaking in Abu Dhabi said higher shipping, fuel, insurance and security costs are complicating contract execution across the region as threats around the Strait of Hormuz make equipment deliveries more difficult.
Maire Chief Executive Alessandro Bernini said logistics costs in some Middle East contracts had tripled, while fuel expenses doubled and labor costs rose by 30% to 40%. He said the war, now in its ninth month, has damaged infrastructure and forced personnel to leave several countries. Saipem Chief Executive Alessandro Puliti said his company had been unable to move equipment normally after vessels became stuck near Hormuz.
The disruption is also changing how contractors manage inventory. Nesr, which operates in Saudi Arabia, the United Arab Emirates, Kuwait, Oman and Iraq, said it has had to keep materials in warehouses for longer periods to prepare for possible interruptions, making shipping and logistics its largest source of cost growth. Chief Executive Sherif Foda said companies are absorbing much of the increase while continuing to execute projects, leaving contractors to determine how much of the extra expense can ultimately be passed to customers.
The cost pressure comes as oilfield activity shows an uneven recovery. Middle East revenue rose 13% from the previous quarter as activity improved in Iraq, Kuwait, Oman, Saudi Arabia, Qatar and the United Arab Emirates, although renewed disruptions emerged during the final weeks of the quarter.
Higher oil prices have encouraged additional drilling in some markets, creating potential work for service companies, but the equipment, personnel and transport required to perform that work are now more expensive. The immediate commercial issue for contractors with existing regional commitments is whether customers will accept higher project costs or whether service companies will continue carrying much of the burden themselves.