Alessandro Bernini, CEO of Italian engineering firm Maire, said logistics costs on some Middle Eastern contracts have tripled, while labor expenses have risen between 30% and 40%. Fuel costs have doubled, and Bernini warned that the additional expenses would eventually contribute to higher energy prices and inflation.
The nine-month conflict has damaged infrastructure and made moving equipment through the Strait of Hormuz increasingly difficult. For Saipem, another Italian contractor, the problem is getting equipment to its destination in the first place. “We have been sitting outside Hormuz for months,” CEO Alessandro Puliti told the conference.
National Energy Services Reunited (NESR), which operates across Saudi Arabia, the UAE, Kuwait, Oman and Iraq, has been storing materials in warehouses for longer periods to protect against supply interruptions. Those precautions come with additional costs that contractors often cannot recover. "You eat it most of the time," NESR CEO Sherif Foda said.
The financial pressure is cutting into contractors' margins and raising the cost of completing energy projects. Recent earnings reports show an uneven recovery. SLB reported a 9% sequential increase in third-quarter Middle East and Asia revenue to $2.81 billion, though the figure remained 6% below year-earlier levels. The company said Middle Eastern activity recovered during the quarter before renewed disruptions emerged in September. Baker Hughes reported $1.26 billion in Middle East and Asia oilfield services revenue, down 13% from a year earlier, partly reflecting a business divestiture.
Higher oil prices have encouraged additional drilling in some markets, creating more work for service providers. But the equipment, personnel, and transportation needed to perform that work have become considerably more expensive. For contractors already committed to Middle Eastern projects, the immediate question is how much of those additional costs they can pass along to customers.