Oil service companies in the Middle East are facing a threefold increase in logistics costs due to the Iran war. Fuel costs have doubled, and labor costs have also risen by 30 to 40 percent. This financial pressure resulting from the nine-month war has negatively impacted project operations and equipment delivery.
Consequences of War on Project Costs
Managers attending the ADIPEC energy conference in Abu Dhabi spoke about the increasing financial pressures resulting from the war in Iran. Infrastructure has been damaged, and evacuating personnel has become necessary, making the transportation of equipment from the Strait of Hormuz more difficult. Alessandro Bernini, CEO of the Italian engineering company Maire, stated that logistics costs in some Middle Eastern contracts have tripled, and labor costs have increased by 30 to 40 percent. This rise in costs has reduced contractors' profit margins and increased the costs of completing energy projects.
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Challenges in Equipment Supply
For Saipem, another Italian energy contractor, the main issue is delivering equipment to its destination. Alessandro Politi, the company's CEO, said: "We have been waiting for months outside Hormuz." The National Energy Services Company (NESR), which operates in Saudi Arabia, the UAE, Kuwait, Oman, and Iraq, is storing materials in warehouses for longer periods to prevent supply disruptions. These precautions come with additional costs that contractors are usually unable to recover. Sherif Foda, CEO of NESR, said: "Most of the time, you absorb these costs yourself."
Recent revenue reports indicate that the industry's recovery is proceeding unevenly. SLB announced that revenue from the Middle East and Asia reached $2.81 billion in the third quarter, 9 percent higher than the previous quarter but still 6 percent lower than last year. Additionally, Baker Hughes reported oil service revenue in the Middle East and Asia at $1.26 billion, a 13 percent decrease from last year. However, high oil prices have led to increased drilling activities in some markets, while the equipment, personnel, and transportation needed to carry out these tasks have become significantly more expensive.
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